A new year will refocus the minds of lenders

We are, give or take, seven weeks away from the end of the year. It has undoubtedly been a tumultuous one, particularly since the end of August.

Even with all that tumult in the last couple of months, we shouldn’t forget that up until the end of the summer, the UK housing and mortgage markets were pretty strong, and there will have been a significant amount of business during that period, and given where rates went, a significant amount of profit made by lenders since then.

What is clear to us is that many lenders have already partially drawn a line under the year 2022 already. Targets for the year – for the most part – have been hit and the rest of the year does not require them to bring in significant levels of volume but what business they do bring in will, in all likelihood, be highly profitable. In a sense the rest of the year is the cherry on the top of the cake.

But, and this is a big difference to be aware of, 2023 is an altogether different proposition, one which is going to require a new level of thinking and a new strategy on the part of many lenders if they are going to hit the targets they will set themselves.

Let’s be honest here, as we know, lenders do not tend to draw back on targets just because there are murmurings of the next year being ‘more difficult’. Those working for the lenders will still be told to achieve above and beyond what happened in 2022, and that will make for a different mortgage market, probably from the very early days of 2023. We may already be seeing that market beginning to reveal itself already – every single lender communication over the last 10 days has been to announce rate cuts.

Part of the reason why many mortgage advisers were urging panicked borrower clients to just hold on – if they could – was our belief that the frantic and chaotic market post-‘Mini Budget’ might not be the ‘norm’ for very long, especially when it became clear that the measures announced were not sustainable and would be junked very quickly.

That has now happened, and even with the Bank of England raising BBR earlier in the month, there still appears to be a case for rates to continue falling. It has been interesting to hear from both Governor, Andrew Bailey, and the Prime Minister in recent days, suggesting that lenders may wish to use this period to bring down rates further. That sort of pressure being brought to bear tends to be listened to.

However, as mentioned above, what we also know is that a new year will refocus the minds of lenders who will start with a blank lending book that needs to be filled. And from that perspective, we believe we will start to see a much more competitive market early in 2023 that will allow both purchasers to get their transactions moving and hopefully ensure remortgagors are not suffering as severe payment shock as they might have been anticipating.

We are also hoping that lenders use the time afforded to them now to sort out the service and capacity issues that have bedevilled the industry for almost three years. In all honesty, lenders have still not recovered from the significant market boost provided to them in the immediate aftermath of the first Covid lockdown in the spring of 2020.

Too many of them listened to the doom merchants who suggested the lockdown would spell the end of purchasing as we know it, they cut their resource cloth accordingly, and have struggled to get the people back in place to deal with the business that has been maintained ever since.

Lenders, in the main, have not invested enough to deal with the increased business they have been dealing with. In what other industry, would a business not have the capacity to deal with a significant increase in demand? Could you imagine Apple, for example, not investing in the resource and infrastructure to deal with a 20% increase in demand for its products?

Absolutely not, but that is what many lenders have done, and as a result we have all had to suffer the service indignities foisted upon us in recent times. With clients having to put up with the very highest rates simply because the lender couldn’t cope with the business? It would be funny were it not so serious for all concerned.

Will 2023 be any different? Well, it should be, but that isn’t to say it will be. We certainly need to get away from lenders who are as utterly short-sighted as Mr Magoo when it comes to dealing with business capacity, servicing that business effectively and not throwing the baby out with the bath water in an attempt to try and deal with demand.

There is an opportunity to have a clean slate approach to lending in 2023, one in which service is maintained, where rates reflect the market not the inability to cope with demand, and where borrowers get strong advice and a competitive mortgage as a result. It doesn’t seem a lot to ask for, but as always the proof of the pudding will be in the eating.