Over the past 12 months, average prices for energy bills, grocery bills and other household costs have risen by an average of 3.2%, according to the Office of National Statistics. With increasing household bills putting a squeeze on people’s day-to-day spending, many customers across the UK are feeling their purse strings tighten to the extent that their mortgage affordability could be at risk while the nation as a whole is in recovery.
With inflation now at 5.1% customers are needing clear communication and strong understanding of how this affects their affordability and financial planning; indicating relationships between lenders, brokers and their customers are more important than ever.
The impact of inflation
In late September, the Bank of England voted to keep interest rates at 0.1% when inflation had already risen to 3.2%. Since then, we’ve seen inflation rise further to a ten-year record high of 5.1%. This is a true balancing act as the momentum built in the housing market over the last 12 months won’t want to be lost.
However, this will be of little comfort to some prospective and existing mortgage customers who are likely to be already feeling the effects of inflation due to, for example, the reported ongoing lack of energy supply.
Energy companies have succumbed to the pressures of inflation resulting in millions of customers having to change their provider within existing property boundaries. This is because providers were not equipped with sufficient savings to withstand increases, causing rates to increase by 12%.
The primary concern is that vulnerable customers may not be financially equipped to absorb price fluctuation.
As a result, this has put increased pressure on the Bank of England to raise the base rate, which was announced on 16th December from 0.10% to 0.25%. This will have an immediate impact on customers with a variable mortgage. Furthermore, both high street and specialist lenders may potentially begin to explore reviewing their range and rates.
Given increasing customer concerns, intermediaries should be proactive in providing a supporting role to review their customer base and contact those who are approaching the end of their fixed term. It’s important to provide reassurance that there are options to help improve their circumstances; for instance, guiding those currently on a variable rate to consider a fixed-rate term if their circumstances allow. It is imperative for both parties to plan ahead and prepare for possible changes.
Helping customers take a more informed approach
Where there are financial blips or changes in circumstances resulting from the current financial climate, something as simple as an income and expenditure review can help customers understand if there are any quick savings to make.
Depending on their current account provider, there is also an increasing number of digital tools and in-app features to help customers understand their spending habits to prioritise their bigger financial commitments, which can only be a good thing.
Our consistently voted ‘most popular’ tools by brokers we work with are our Residential or Buy to Let affordability calculators, to get an indication of what their customers could borrow. These provide an understanding of whether their customer is on the right track for their chosen property.
We also use a combination of our human underwriting approach and have recently launched an automated valuation model on our Residential remortgage products, where the LTV and loan size allow.
As the economy recovers following the pandemic and more mortgage customers feel the financial pinch due to rising prices, lead with a people-first approach. With brokers working closely with specialist lenders, the more upfront information we have, the better we can all understand customers’ specific needs to deliver the best outcomes.
Is now the right time for a specialist lender?
At a time where it may feel as if a few doors are closing on your customers, remember there’s always support available to you at Pepper when you need to chat through a case. Our Regional Development Managers are there to support you pre-application, and once you’ve submitted, you’ll be in capable hands with your dedicated Case Owner.
Our biggest asset here at Pepper Money is our people, and we’re proud to keep our underwriting processes manual without compromising on turnarounds. At times where there’s added complexity in an application, such as a financial blip or change in circumstances, it’s much more beneficial to have another person look at a case, rather than a computer. You can discover recent feedback on our service via our Trustpilot to understand how we’ve dealt with (almost!) every type of application.
Make sure you follow our dedicated Mortgage Intermediaries Hub to keep up to date with all of our latest product updates built to support your customers. To get in contact with Ryan Brailsford, connect with him on LinkedIn or contact any of our Regional Development Manager team.