As getting products in and out of the market becomes a challenge for even the most agile of lenders, Steve Carruthers discusses the quest for operational excellence.

Moneyfacts data showed the average shelf-life of a mortgage product had sunk to a record low of just 17 days at the start of August. Another base rate rise later, and providers again pulled products and came back with revised pickings.

The market has seen lenders withdraw and reprice far more frequently than has been the case in a good while. Partly that’s down to the changing economic situation; it’s also due to lenders needing to control application volumes as competitors pull products, suddenly rendering their deals best buys.

Rates continue to climb. Since the start of August, Moneyfacts data showed the overall average two-year fixed rate has already increased by 0.14% and has now reached 4.09%. According to its first-of-month averages, this is the first time this rate has breached 4% since February 2013.

Getting products in and out of market has become a serious issue for many of the lenders to whom we spoke.

Even in our Mortgage Efficiency Survey interviews this year, getting products in and out of market has become a serious issue for many of the lenders to whom we spoke – many have not had to go through the gears of quick product repricing for many years with serious consequences for operational and funding models.

Meanwhile, the price gap between variable and fixed deals is becoming increasingly marked. This is one of the flags which makes me wonder about how the majority of the mortgage market defines value. Sourcing systems throw up results based on rate. We all know that fees matter. We all know that most clients don’t care.

I often think the need for agility is viewed from the lender’s point of view, but brokers and borrowers will demand it too. Borrowers are even more price sensitive than usual given the rising cost of living. Every extra pound in their pockets each month is going to matter for an awful lot of people. But their financial circumstances are also going to be a lot more complex, unpredictable, and stressful.

The need for good products that serve everyone well will demand operational excellence in systems and people.

This means there is a very good possibility that agility in pricing and mortgage propositions will be with us now for some considerable time. Not simply because of funding issues that support product pricing but because consumers will make decisions today on borrowing, they will want to unwind sooner than we, and they, may think.

You can see why. If a borrower is considering a move in the next couple of years, who’s to say an ERC-free tracker isn’t a cheaper option than a fix they could have to pay thousands of pounds to get out of early? Some will argue for it, others against it.

Some lenders are worried that mortgage recommendations, skewed by headline rates dominating the brokers’ sourcing systems, could cause them a real headache in future.

The danger with fixing on the lowest rate possible is that, where loan-to-values are high, affordability is stretched. Even where affordability has a very healthy cushion, inflation is going to put the squeeze on it.

Of course, this is where good advice is crucial. It’s not just lenders who are thinking this carefully about future affordability. There is also the regulator to consider – what is responsible lending in an economy where even stable and well-managed family finances look unavoidably wobbly?

Borrowers, and it’s often first-time buyers who are desperate to get on the ladder, whatever the cost, are all too often not going to worry about what happens next year. They’ve got the house. For many borrowers, house prices go up - don’t they?

I am not for one second saying they won’t – there are too many factors supporting demand and constraining supply for the housing market to tank. But that doesn’t mean some borrowers may feel obliged to take a lower rate regardless of the upfront cost. It cannot be in customers’ best longer-term interests to mortgage themselves to the hilt when we all face a very uncertain period for our finances.

The question of where mortgage products go after this current bout of inflation will demand changes of us all. But in terms of implementation, speed and agility will matter to everyone because lending will be about delivering the right product at the right price at the right time. As we have seen, outcomes are becoming the regulator’s goal for borrowers. The need for good products that serve everyone well will demand operational excellence in systems and people.

The future will require more products and newer propositions – digital and otherwise – that can meet the need for agile borrowing due to the current market.

This article first appeared in Mortgage Introducer.

Mortgage Efficiency Survey 2022

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The past 12 months have brought much change and new challenges for UK mortgage lenders, but the need to process business efficiently has not changed. Using insight from a broad range of lenders, all with different experiences and approaches, the Mortgage Efficiency Survey shows how the industry's thinking and approach have evolved.

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