Decisions being based on a future which looks increasingly unlikely

Take the first lockdown last year. Here is a selection of opinions that were voiced between March and May last year – house prices would drop by double digits, transactions levels would barely get going again, rents would fall across the UK, arrears and possessions would rise significantly, all types of borrowers would either have to stay put or not be able to access mortgages, product choice would be next to nothing for all but those with the highest deposits/level of equity. The list goes on.

And yet where are we now? Certainly not in a position which would be defined by any of those predictions. Indeed, we are far from many of them.

We know there is an obsession with gazing into crystal balls in this marketplace, and of course, we fully recognise that lenders in particular have to make an assessment on the future performance of the asset they are lending on, and an assessment of the individual(s) who are taking out the mortgage to ensure they are credit-worthy, but at the moment we have to question whether the ‘white noise’ around the market – most of it completely irrelevant and/or inaccurate – is getting in the way of a sensible approach based on market fundamentals.

Fundamentals such as the scarcity of property and land, the disconnect between demand and supply, the impact of lockdown living and what that is likely to mean for a positive housing market going forward, the vastly differing impacts of the pandemic and how it effects certain borrowers in certain regions in very different ways, etc.

Because at the moment, with an increasing number of baffling decisions, we appear to be seeing those fundamentals discounted, often in favour of what seem like ‘finger in the air’ guesses about how the UK housing market might, or might not, perform. And, as a result, what we are also witnessing are various borrowers being punished because someone, somewhere, is way too pessimistic for their own good, or is taking it upon their own shoulders to mitigate heavily for a risk that doesn’t exist.

How else might you explain a situation where lenders are currently charging first-time buyers, who want to borrow 90% LTV, in excess of 1% more than they were pre-pandemic. This, when the cost of funding hasn’t gone up and neither has the risk. So, if you’re in the 10% deposit bracket you’ll be paying well over 3%, and if you’re at 65% LTV, you’ll be just above 1%.

This is not what the market needs at the moment, and might lead us to say that some lenders are profiteering here. Or it’s pricing based on an assumption that the entire market will fall off a cliff-edge when the stamp duty holiday ends, which also seems off the mark compared to today’s activity.

So, we now have a situation where all rates above 75% LTV are up, and all those below 75% LTV are down. Now, we may celebrate the latter part of that sentence, but what about the former? Is the cost to process mortgages any higher as a result of the pandemic? We would suggest not, especially when you add in the greater use last year of AVMs and digital tools in order to get cases through.

A number of lenders have recently told us that the extra margin is being taken because they are choosing to underwrite more cases manually across the board, no doubt in order to ‘calm nerves’ about the potential for riskier cases making it through the pipes. But, this has always been the case and was always something that lenders did, only now it’s every 75% LTV-plus borrower who is having to pay for it in terms of the far greater rates they have to accept. You would think there was an opportunity to be far more nuanced with the approach rather than approaching it in this catch-all manner.

And, added to this, we have the return of physical valuations and with it, what can only be viewed as the ultra-conservative appraisal of property values. Down-valuations are rife. We regularly have properties valued at prices which are less than they were two years ago. Figure that one out, when you have house price indices pretty much all showing annual growth in the region of 6-9% and that’s just over the last 12 months, let alone what it might be from the early part of 2019.

When you ask for the price comparables to justify these decisions, there aren’t any, and reading between the lines this looks like an attempt by many surveyors to justify their existence against AVMs, and protect lender clients against a threat which doesn’t exist, but might have been forecast to exist a year ago.

These are broad-brush approaches in the extreme, and they are ultimately damaging to our market and to borrowers, who have to put up with them, in order to get on the ladder. We understand the impact of the pandemic, but lenders are sophisticated operations – it’s about time that some used the evidence of their own eyes to make their decisions, rather than rely on those who appear to have them closed, and seem like they are wishing for the next crash.