If you’ve been following the mortgage industry over the past 12 months, you’ll no doubt have seen that many lenders launched products only to withdraw them again shortly afterwards. Launching and withdrawing products is perfectly standard but this activity certainly intensified as the severity of the pandemic became apparent last year.
Here we explain all the factors that mortgage providers take into consideration:
How best to serve the customer
The customer is always at the heart of our short and longer-term decision-making. We, and other lenders, are continually assessing the market dynamics to see what products our customers might need now and in the future. This could include factors such as the rising age of first time buyers, increased interest in self build, or a greater number of people becoming self employed.
Lenders don’t look at these factors in isolation either – they’re also keeping an eye on the competition to see where there are gaps in the market for certain product ranges, for certain types of borrowers, or other specific criteria including deposit size, loan size, mortgage rate etc.
Risk versus reward
Another factor that lenders consider is their appetite for risk versus the potential reward.
There is a risk attached to different property types. The lender needs to know what a property is worth and that’s a lot easier to determine if it is constructed from standard building materials rather than something unique, unusual, or that hasn’t even been built yet (in the case of a self build mortgage).
Providers have to make decisions about the types of applicants they wish to attract and on which types of properties they prefer to lend. If there is a perceived greater risk, they tend to charge more for the mortgage.
Lenders also have to consider their own capabilities. If they’re thinking about launching a new product type, do they really know this area of the market well and if they had a surge in applications, could they cope with the resources they have – both in terms of staff and technology? Sometimes mortgage lenders will have to withdraw a product simply because they can’t cope with demand and they don’t want to keep intermediaries waiting for too long before making a decision on their application.
Rules & regulations
Finally, as lenders we have financial rules with which we need to comply. Some are set by financial regulators such as the Financial Conduct Authority and others are set internally.
The pandemic undoubtedly threw additional hurdles into this mix for lenders, such as not being able to undertake property valuations in person and the complexities of staff working from home. Hopefully, it’s now a little clearer that under normal circumstances, these decisions aren’t sudden knee-jerk reactions but a more strategic process to ensure lending is sustainable over the long term for both the lender, intermediary and their client.