Dig deeper, consider the trends and the scare- mongers start to make sense.
So just how fragile is the housing market and is a correction on the cards?
Figures from the Council of Mortgage Lenders show that the percentage of first-time buyers’ salaries used to pay the interest on their mortgages rose to 18.7% in April, the highest level seen since 1992. And that was before May’s base rate increase.
This is strange as interest rates hit 15.4% in May 1993 and we’re still nowhere near that level today de-spite the recent increases.
So if first-time buyers are paying a greater percentage of their salary on their mortgages despite lower rates, what’s going to happen if the base rate continues to increase? The consequences don’t bear thinking about.
But lenders are still offering first-timers increasing income multiples. They must have economists looking at these trends, so why aren’t they pulling their lending policies back?
Maybe they think we are at the top of the interest rate cycle, but I’m not so sure. Despite a reduction in inflation figures, interest rates could rise again, maybe by as much as 0.5% before the end of the year.
Maybe they’re confident their affordability models and underwriting are robust enough to make good decisions, despite the growing in-come multiples.
But that’s not what you see if you consider growing arrears, spiral-ling repossessions and increasing litigation be-tween lenders and other professionals.
The time is coming when a reality check will be required and lenders will have to rethink their largesse.
If they don’t, market forces will bite them where it hurts and the eventual correction will be all the more severe.
But it’s not all doom and gloom as every problem presents an opportunity for someone, in this case brokers. If they want to embrace the Treating Customers Fairly initiative and form long-term relationships with their customers, they need to start helping them with foreseeable problems now.
A good starting point would be borrowers coming off fixed rates. Typically, these clients will see their payments jump by a third if they move onto SVRs. All brokers worth their salt can do better than that.
So as the housing market slows down and lenders start to retract their product criteria, good brokers can still maintain their business volumes by altering their profile to fo-cus on existing customers rather than new ones.