Tightened self-employed lending criteria and affordability rules seen across the mortgage market since the pandemic began could remain in place into 2022, HSBC is warning.
And as sectors such as hospitality, retail and heathcare are affected in different ways by the economic fallout of the Covid-19 pandemic, lenders could start segmenting the market by various traits.
HSBC also said it was looking to continue expanding its broker distribution to more firms and suggested now was a good time for advisers to be considering their fee-charging models.
Speaking at The Mortgage and Protection Event 2020, HSBC UK head of south region and large loans Amanda Fenner acknowledged self-employed borrowers had seen some of the biggest changes.
She recognised some brokers have been frustrated about how criteria for self-employed borrowers has changed across the industry since the pandemic began.
However, Fenner said HSBC had no plans to loosen its self-employed affordability criteria, adding the lender was keeping “really close” to self-employed lending.
“To get as up to date a view on a client’s business and compare it with pre-Covid times, business bank statements have become a must use tool, but to pull out the correct information and manually assess it can take an hour and a half,” she said.
“We’re determined to keep helping self-employed customers, but we need to find a way to get an updated view without these time-draining processes – so technology enhancements will be useful.
“Open banking would take it to 10 minutes, the outcome of the case will be the same but we’ll be able to deliver a much better customer journey.”
Pre-empt underwriter questions
Fenner urged advisers to detail the bigger picture wherever possible in lender systems when submitting applications and not to wait for an underwriter to ask expected questions.
“I think this level of detailed underwriting could be around for some time – a self-employed business owner doesn’t have to file their 2021 business accounts until January 2022,” she continued.
“But we need to get better at helping certain types of businesses where the picture is far less uncertain, so we could end up with a segmented lending approach.”
She continued: “We’re trying to be as pragmatic as we can with self-employed, we’ve tried really hard not to say here’s a one-size fits all, we really are looking to you to provide us with more insight with supporting documentation to make the right decision for the client and that will continue.”
On changes to affordability, Fenner acknowledged affordability has definitely reduced across the market.
“You’re unlikely to see that come back until employment feels more solid and lenders want more of your business,” she noted.
“When lenders are ready to compete again for business you may see the reintroduction of annual bonuses to lending policy, but the likelihood is we’ll want to see a bonus paid in 2021 – that’s in order to be comfortable this isn’t an income they are likely to lose.
“In some cases that could mean another six or more months away, so it’s likely there will be a lull where bonuses are being paid.”
‘Engage more brokers’
During the question and answer session, several advisers asked if HSBC would be expanding its distribution to more smaller networks and directly authorised firms.
Fenner said the bank was “looking to engage with more brokers” and while she couldn’t confirm any exact plans, she admitted further broker rollout was “something that’s always on our radar”.
Fenner continued: “Brokers have done an incredible job and I can see clients staying loyal for a long time.
“As those clients who went direct now find themselves waiting three or four weeks just to get an initial meeting, so the intermediary market looks set to be strong for some time to come with more than four out of five mortgages being written by a broker.”
She added: “If you answered no to ‘Will you be charging a client for the professional advice you give?’ now might be the time you want to re-address this question and make a decision that best suits you, your business and your clients.
“There’s no right or wrong answer, but reflecting on it is surely a must.”
Elsewhere in the session, Fenner acknowledged HSBC was keen to re-enter the 90 per cent loan to value (LTV) space but needed other lenders to join it to avoid being overwhelmed with demand.
Owain Thomas is features and contributing editor of Mortgage Solutions and editor of Specialist Lending Solutions.
He also has experience in the protection, pensions, workplace benefits and HR areas.
Owain has won two Headline Money Awards and the Protection Review’s Journalist of the Year award.