By Richard Pike, sales and marketing director, Phoebus Software Limited
Interest rates are on the up and inflation could go double digit by the end of the year. Affordability models are being tested, and although stress tests seem to be okay, reports are that first and some second time buyers are really feeling the squeeze. Arrears although still relatively low, have increased by 14% over the past year.
The stamp duty holiday combined with city folk seeing the benefits of gardens and fresh air meant house prices jumped in unprecedented ways last year, but these rises are now slowing. There is market rhetoric that regional corrections will occur, with some London prices in particular being highlighted as areas that may see some correction.
So, what does this mean for the lending community?
The Global Asset Backed Securities conference in Barcelona is back this year and over 2,500 attendees are registered already. As a hotbed of everything wholesale funding related, this would appear to be a sign that the securitisation market and associated models are seen to be in good health and still to be seen as a core area of mortgage funding.
This is great news for specialist lenders that rely on this form of funding, and companies such as ourselves that offer securitisation solutions are taking the view that R&D spend in this area is warranted and we will be ensuring that our solutions continue to meet the needs of the market.
For those that offer savings and deposits used to fund lending, we are yet to see many institutions increasing savings rates quite as quickly as mortgage rates and so margins will be better until they do. Those with a mixed element of retail and wholesale funding therefore will be in a particularly decent place from a profitability perspective.
Post completion, we are seeing a large focus on arrears management and collectors are being recruited nationally to beef up this important area of lending. Although the government will undoubtedly lean on lenders to continue to offer forbearance, there is an economic realism that in some cases repossession is the only viable option.
History dictates that when repossessions increase regionally, house prices in certain areas can get affected and so this is something to watch out for. There are software providers such as one of our strategic partners “MIAC” that offer portfolio modelling tools and it may be prudent to consider looking at these as uncertainty in the market rises.
Opportunities and innovation
But against this backdrop, opportunities are there. We are seeing an influx of development finance deals in the market reacting to the supply and demand dilemma we still find ourselves in.
Innovation within traditional products is happening with products such as “bridge to let” being launched and, of course, green mortgages and ESG are two areas that are very much on the agenda of mortgage products, pricing and securitisation.
In summary, things do remain positive as I write this, but there are potential signs of a correction that are similar to the other three recessions I have worked through in my time in mortgages.
The extent of the correction will be affected locally and also by global events, but lenders that are proactive and take the correct steps now based on their risk appetite will still find opportunities and also ensure that customer outcomes are positive in general.