Navigating the mortgage market in today’s challenging climate

Navigating the mortgage market in today’s challenging climate

Alpa Bhakta, CEO of Butterfield Mortgages, says the property market has responded resolutely to the challenges posed by Brexit

Navigating the mortgage market in today’s challenging climate

As it has dominated political and economic discourse for the best part of three years, it can be difficult to find anything new to say about Brexit. The undeniable truth is that the UK’s impending departure from the EU has created uncertainty, which has impacted the financial decisions of consumers, investors and businesses.

At Butterfield Mortgages Limited (BML) we have seen this uncertainty transfer into hesitancy. Many of those with intentions to buy or sell prime real estate in London and the South of the country have put plans on hold in the hope of gaining better clarity on what Brexit will mean for their finances and the performance of different investment markets.

But it is important not to let uncertainty trigger more serious concerns, nor to allow it to taint our views of all financial markets, some of which have responded resolutely to the challenges posed by Brexit. The property sector falls into this category.

Between the EU referendum (June 2016) and the start of this year, the average price of a house in the UK rose from £214,000 to £228,000, according to the Office for National Statistics. Meanwhile, UK property transactions statistics for January 2019 showed that on a seasonally adjusted basis, the number of transactions on residential properties was up 1.3% year-on-year.

It would seem many of the doom and gloom predictions have been exaggerated, with data suggesting that demand for property remains high while prices continue to rise. So, for those individuals who are still keen to pursue real estate purchases, the question is: how do they navigate the mortgage market and select an appropriate lender?

Mortgage products on the rise

The number of mortgage products available on the market has increased notably over recent years. In fact, data from Mortgage Brain suggests that between 2016 and 2018, an additional 4,214 products were introduced into the residential mortgage market.

There are two reasons for this trend: firstly, existing lenders are diversifying their products and services to cater for a broader range of clients; secondly, new lenders are entering the market all the time.

A broadening of the mortgage market is, for the most part, a positive development. However, it has not necessarily made matters easier for borrowers, who are now confronted with a greater choice of products and lenders than ever before, making it difficult for them identify the best options.

Moreover, certain demographics still struggle to secure the right mortgages. High net-worth (HNW) individuals and property investors are two examples of such groups.

Earlier this year BML commissioned an independent survey of more than 500 HNWs, finding one in nine had been denied a mortgage in the past decade. The research also uncovered: 79% think too many lenders are governed by restrictive “tick box” methods when assessing mortgage applications; 60% believe it is becoming increasingly difficult to secure a mortgage for a non-primary residential purchase; and 67% of UK HNWIs have lost confidence in high street banks, feeling they do not cater to the needs of property investors and buy-to-let landlords.

Choosing the right product and lender

While only focusing on one particular part of the mortgage market––HNWs––the research demonstrates how greater choice is not always a good thing. Indeed, it is often the quality of the service and the ability to access the best product for the individual that is of most importance.

This is why intermediaries, such as brokers, wealth managers and financial advisers, are so important in enabling individuals to navigate the mortgage space. The more specialist a person’s requirements, the more useful intermediaries are. BML’s aforementioned study underlined this point, revealing that 73% of HNWs rely on brokers to help them find mortgages.

Finding the best product from the expanding range of options is not simply a question of being guided in the right direction, though. It also requires borrowers to consider the relative strength and security of the lenders, something that has become increasingly important in today’s uncertain climate.

Over recent months, the likes of Secure Trust Bank, Amicus Finance and Fleet Mortgages have withdrawn from the lending market or frozen their activities. As the FT Adviser reported in January, the combination of Brexit and increased competition has forced some companies out of the market, while other lenders are pulling out of deals at the last minute.

Lenders’ longevity is often dependent on the strength of their funding lines and the skills of their teams. Borrowers and their brokers must have confidence in both, particularly when it comes to smaller, newer or more specialist mortgage providers.

Regardless of Brexit, the UK’s property market has held firm, while the growing number of mortgage products available reflects significant levels of market demand. But finding the right mortgage from the right lender is not easy; borrowers and their brokers must not only assess the relative merits of a specific product, but increasingly they must also carefully consider the stability of the lender itself, ensuring they are partnering with a business able to thrive even in today’s challenging climate.

Alpa Bhakta is the CEO of Butterfield Mortgages Limited. Part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNW individuals.

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