We are a about 11 weeks into the new regime of Mortgage Market Regulation. I think this is probably long enough to see if it is having an impact on the application process.
Prior to April when the regulations came in most of the lenders were gearing up to the event and had changed their criteria accordingly. I would say that as brokers we were more than ready for the change and were probably operating under that sort of regime anyway. The big change, I think, has been for the lenders. The broker has to adapt as an individual the lender has a much bigger burden, and as they are ultimately responsible for checking affordability then they arguably have a bigger responsibility.
The affect this is having in the main is that lenders are taking longer to agree cases. From my experience where the applicant is self employed the process is significantly more onerous. The difficulty the lenders face is that they know the market is on the up and they need to fight for their slice of the cake. They fight for their slice by competitive pricing in the first instance. With a simple analysis of supply and demand the lowest rates get the most demand, be it from brokers or from direct customers. So whilst fighting for the market share in a rising market and therefore pleasing shareholders they also have to remember their responsibility to the customer and regulator. With some lender this is causing some real difficulty in dealing with the demand.
As each application demands more scrutiny then each application takes longer to process. I find the frustrating element being that if an underwriter asks for further information they then take another week or so to assess that further information. You have to second guess what they may ask for to ensure you are not responsible for delaying the application.
There are one or two lenders who have not raised their rates enough to reduce demand whilst they are struggling with the workload. Subsequently this is making a bad situation worse. Main culprit at the moment is Woolwich mortgages from Barclays. Santander have improved over the last couple of weeks.
The big two lenders Halifax and Nationwide seem to be coping well in fairness, but in my opinion they are pricing themselves more sensibly so as to cope with demand.
I am trying to manage the expectations of my clients and so far things are OK. So the main difference thus far is that things are taking longer. What has also happened is that the Bank of England have a bit of a say in what is going on too and one or two lenders are capping their income multiples.
Although income multiples are not necessarily an explicit method of calculating how much a lender will lend they are used as part of their affordability calculations. Some big names have put a limit of four times salary on lending over £500,000. This initially is in response to the rapid house price rises in London over recent months, Nationwide quoting 26% annual growth in their latest House Price Index report. In fact they have shown growth across the UK, with the average UK house price having increased by 11.5% over the year to June 2014.
It does seem a little contrary that in a regime of stricter lending conditions and longer processing times we are seeing such a significant increase in property prices. The difficult thing to predict is will this continue? My opinion is that lack of supply is the main factor behind the increase in prices, if supply stays low then prices will steadily increase until the demand falls away because people cannot afford to keep up.
It does feel like there is constant tinkering from the regulator and government but regulation cannot dampen the British desire to own property.