"We know that swap rates can be a little unpredictable and short, sharp swings are still evident but their impact has, thus far at least, been far more minimal than we have experienced previously."
It’s no secret that economic stability is a key component in maintaining consumer confidence, and even more so when it supported by a highly robust housing market and a mortgage arena which is not suffering from wild rate swings.
Now we know that swap rates can be a little unpredictable and short, sharp swings are still evident but their impact has, thus far at least, been far more minimal than we have experienced previously. From speaking with a host of intermediary partners, it’s evident that a rising proportion of their clients appreciate that the new interest rate norm is unlikely to radically change any time soon and this is realisation is coaxing more and more potential and existing borrowers off the rate sitting fence.
Let’s not pretend that market conditions are perfect, but we are - pardon the pun - operating from far more solid foundations from a borrowing perspective. The short and shallow recession is now officially beyond us, inflation is slowly but steadily falling and gross lending and mortgage approvals continue to rise. All of which represent encouraging signs in their own right and even more so as a collective.
Indeed, the latest Money and Credit statistics from the Bank of England showed that net mortgage approvals for house purchases rose from 60,500 in February to 61,300 in March, the sixth consecutive rise and the highest number of net approvals since September 2022. Gross lending rose from £18.6 billion in February to £20.1 billion in March, the highest amount since February 2023. Likewise, gross repayments increased from £16.6 billion to £19.5 billion over the same period.
In addition, the average interest rate paid on new mortgages decreased by 17 basis points, to 4.73% in March, although comparing longer term, the rate on the outstanding stock of mortgages increased by 2 basis points, to 3.50%.
The past 18 months have certainly tested lenders’ resilience and adaptability. As such, it was interesting to see the publication of a speech by Emily Shepperd, chief operating officer at the FCA, delivered at the Building Societies Annual Conference outlining how some lenders have spotted opportunity where others just saw risk – and in doing so, have helped tackle financial exclusion whilst maintaining approaches which are responsible and sustainable.
This also underlined some interesting trends and observations, namely:
• A rise in longer mortgage terms has recently been witnessed – mortgages lasting longer than 30 years made up 35% of sales last year. Although, it was added that extending mortgage terms, while appropriate for some, is a symptom rather than a solution to today’s affordability challenge.
• The FCA’s current rules provide lenders with flexibility to adapt lending criteria and design a range of mortgages. In a higher interest rate environment innovation and creativity, aligned with FCA rules and in the interest of consumers is something the regulator is open to engage with and support.
• The proportion of mortgage customers over 67 is currently less than 2% of all loans. By 2040 this rises to 5%, and by 2050 it is almost 10%. Lending into retirement is moving from a niche to a norm. With borrowers projected to hold debt for longer, lenders should be asking themselves about the products and services they will provide to those borrowers to meet their needs responsibly and help them meet their financial goals.
Picking up on the second bullet point, this is a vital one, especially for lenders operating in the specialist lending space who can really embrace this flexibility and be fleet of foot when it comes to extending their product offerings and tailoring their criteria in line with ever-shifting borrowing demands.
For example, the launch of Solutions by Foundation was driven by rising levels of interest in even more specialist buy-to-let properties, especially in the form of semi-commercial, larger multi-occupation properties and mortgages for expat landlords and this allows us to explore different areas of the specialist market. In addition, through Residential by Foundation, we have just entered the Joint Borrower Sole Proprietor (JBSP) product arena.
As a lender, it’s vital to continue exploring how and where we can provide greater product choice in a responsible manner and spotting opportunity whilst still being accountable from a risk perspective. And, in line with the FCA directives, this is a balance we will continue to strive towards.
