Food for thought

23/10/20

What do mortgages and cheeseburgers have in common?

For me, the concept of a mortgage is quite simple. As a noun it refers to a legal agreement by which a lender lends money and charges interest in exchange for taking a suitable security from the debtor’s property.

Jon Rawley

However, the range of mortgage options is pretty varied. And the appetite of lenders for the type of mortgages they wish to offer could evolve and change depending on a huge variety of factors.

The pace of that change may be determined by internal or external factors. For example, over-exposure in one geographical area or in one particular type of employment sector may lead a lender to re-position how they operate their lending.

And the ‘big data’ that’s more readily available these days helps massively with the decision making. For example, what could a 5% fall in house prices mean for a lenders mortgage book? A 3% rise in unemployment in a specific sector or region? How would a lender need to react to an increase in the number of borrowers asking for a payment deferral?

The words liquidity and capital are often heard in this industry and, generally, the customer (borrower) may have no real concern about why or what they mean in a mortgage context. However, for lenders they are two vital organs. A lack of liquidity (access to cash) will make it hard to lend. A lack of capital (reserves) might also make it hard to lend. That makes it sound as though the two words are inter-changeable. Well, not really. The levels of capital will need to be correct if that lender needs to absorb losses. The right amount of capital is also a requirement set by the regulators to ensure lenders maintain a sustainable business. In other words, if you’re lending in riskier sectors typically you’ll need more capital.

So, what’s the right intake of business for a mortgage lender? Well, just indulge me for a minute here.

In the nutritional world we’re all familiar with calories. If I eat too many cheeseburgers and too much cake, apart from the initial surge of pleasure, I’ll soon become bloated and unhealthy. The reason is the amount of calories in the food. But it’s a complicated measure of food energy. What we eat (and how many calories) is a personal choice. And how energetic we are may impact our recommended input. The suggestion is that the ‘correct’ input for a moderately active man is 2,600 calories per day and 2,000 for a moderately active woman.

But what defines ‘moderately active’? What about a balanced diet? How do we include our requirement for vitamins and minerals? Is one food superior to all others because it’s thought to be a better fuel?

Just measuring calories can be misleading and could lead to a number of failings. As individuals we need a balanced diet that’s right for us. And the same can be said for mortgage lenders: maintaining the right balance of business on a mortgage book.

I completely understand the frustrations felt by many mortgage brokers right now. How do you know what calorie intake or what type of diet a particular lender is currently following? There are so many variations as each lender maybe taking a different approach.

Broker: “but you used to like cheeseburgers?”
BDM: “yes, but my consultant has told me I’ve been eating too many of these and I need to change my diet for a while”

Every lender wants/needs to stay in business. If the advice – and the big data – is telling you to reduce your cake consumption, then it probably makes sense to do so. But that doesn’t mean that lenders don’t want to lend. It’s more likely that they need to take a good look at their current diet (suitable lending appetite for them), consider if that’s making them a bit bloated or feeling unfit, and make any adjustments to ensure they stay in good health. The metabolism of every lender is different.

In such uncertain times communication is so important, lenders need to be competent, agile and smart in communicating their lending appetite to their brokers.

Given the current climate, I feel that access to sound financial advice has never been more important. And trying to support clients who are looking for a 90% LTV mortgage, or have complex self-employed earnings or who simply need to borrow at a level that – in ‘normal times’ – used to be more simple, has become much more challenging.

Brokers are vital in providing the link between lenders and their own clients. The more information and knowledge they have from lenders, the better they can advise and support their clients.

Skipton Intermediaries is built on brokers. We’ve tried to be quick to share ‘changes to diet’ with intermediaries, and also to highlight all the ‘vitamins and nutrients’ that we think can support brokers and their customers. Our regular bite-size webinars – open to all brokers – is just one of the ways we’ve been able to keep intermediaries up to speed and discuss what’s going on in the market. To find out more about these speak to your local Business Development Manager.

Finding ways we can add value to how we work with brokers and their clients continues to be important to Skipton Intermediaries.

These views are Jon’s own.

Jon Rawley
BDM South West
October 2020
All information correct at time of publish.

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