Accord is ready and willing to lend to borrowers at 90 per cent loan to value (LTV) but a lack of lender competition is making it difficult to stay in the sector for longer than just a few days at a time, director Jeremy Duncombe has said.
“Capacity is our constraint – it’s not around appetite to lend,” he told Mortgage Solutions.
The lender is in a “very strong position – capital, liquidity wise and from a risk perspective” and confident about lending at this level.
In and out the new normal
Lenders are now dipping into the market, sometimes for just a matter of hours, before closing shop again.
Accord most recently opened to 90 per cent lending for just two days, while TSB was in the market for just one day.
The reaction to these quick-fire lending stints among brokers has been mixed.
Duncombe said: “We came back in for two days because there really wasn’t any competition in the market to maintain service. We hope to return as soon as our service allows.”
He added: “Every time we go back [to 90 per cent] we get huge amounts of volume which affects our service; it’s a real balance.”
Any lender dipping into 90 per cent is, of course, attracting a deluge of applications because there are so few offering these deals at the moment.
Duncombe acknowledged the lack of competition puts pressure on the lenders that do come in at this level.
He said: “There are a lack of lenders lending in that space.
“To be able to satisfy demand – we can’t do it with a very small supply of lenders in such a significant sector…
“Unless more lenders move into this sector, we will continue to see an undersupply – and lenders having to come in and out of the market to manage capacity and service levels.”
“In and out of the market will become the new normal unless we get more lenders,” he added.
Lenders retreated en masse from higher LTV lending as the pandemic took hold in the UK and the property market went into lockdown in March.
The combination of dealing with thousands of requests for mortgage payment breaks, while staff were uprooted out of the office and physical valuations weren’t taking place, meant many lenders simply couldn’t offer the deals.
These mortgages take more underwriting and, therefore, more resource, whereas lower LTV mortgages can rely more heavily on automated valuations, Duncombe explained.
However, in recent weeks some of these pressures are starting to ease, with staff coming back into underwriting as the demands from processing mortgage holidays tail off.
Communication is key
Maintaining a positive relationship between brokers and lenders is key to the market’s success in the coming months, according to Duncombe.
He said: “The most important thing going forward is communication – trying to explain some of the decisions being made and giving brokers notice.
“Hopefully we’ve been very clear; we’ve tried to give as much notice on product changes.”
Duncombe said he is happy to explain the background to decisions such as pulling in and out of product segments.
He added: “We’re not making decisions just because we feel like it – we have to plan and prepare.”
Brokers can also help banks and building societies create the extra capacity to lend, for example by using the website and spending “an extra 20 minutes on packaging cases, which could then save several hours” of work by both sides”.
House price deflation not a concern
There have been some jitters about a potential drop in house prices, which has been touted as the possible reason behind lender reluctance to come back to the sector.
But Duncombe largely brushed these off the concerns, he said Accord dropped 95 per cent LTVs “which was prudent” but remains comfortable with 90 per cent LTV.
The strength of the market since it reopened in May “took a lot of us by surprise,” he said.
The chancellor effectively poured petrol on the flames with the introduction of the stamp duty holiday in July.
“Demand is there,” Duncombe added.
Nor is he particularly worried about the end of the furlough scheme in October.
He said: “Unemployment is something we need to be aware of, that’s why we aren’t making blanket decisions in the current situation. There are lots of employment types that have boomed – supermarket workers, delivery drivers, the NHS – certain sectors are doing particularly well.”
“We want to support and be flexible with those employees – there are common sense decisions to make in those sectors.”
Market vulnerable to changes in March
However, there is one dark cloud on the horizon for the market, according to Duncombe.
At the end of March, the stamp duty holiday ends and the help to buy scheme changes, becoming more stringent.
Duncombe said there will be “too much of an impact to have them both finish on the same day”.
He believes one should be extended or phased out to help protect the market.