Mortgage lending criteria tightens, threatening housing market
Just as the housing market seemed to be getting back to a state of equilibrium with more inventory coming to the market, underwriters at mortgage lenders are looking again at who they should lend to. This might radically change the housing market again.
The lending of capital in the form of a mortgage is done so across a whole range of indices and factors; the value of the property asset, the amount of deposit available, the status and age of the proposed borrower and their financial behaviour.
With open banking and an increasingly digital perspective on mortgage lending and re-mortgaging, the lending marketplace has been at full capacity, with over 408,000 first time buyers diving in last year – a large number needing a mortgage.
But in the last three weeks, a lot of the big lenders are looking very critically at how they lend and to who, mostly fuelled by the cost of living crisis, which feeds into affordability.
With rampant inflation, it could be argued that this is a good thing. Wages will also increase as well as house prices, but many home dwellers, tenants and owners are now seeing the cost of their utility bills increase by as much as 60%.
So, although buyers might be on a good salary, the amount of capital they have to service an existing mortgage, yet alone a larger mortgage if they seek to trade up, is decreasing. That combined utility bill of £150 a month is now £240 a month, and add in fuel and food…the lenders are becoming nervous about the ability to cover mortgages being applied for.
If, as is expected, all of the big mortgage providers tighten their lending criteria, we could well see a repeat of what happened several years ago when lenders applied stress testing to mortgages. This resulted in the size of loans being reduced and percolated down to property being sold for less.
I can remember as an agent, having sold a terrace home some years ago, subject to contract for £240,000 as the sale went through, we marketed the same house profile next door on the terrace. We expected to achieve similar money quickly. Then new lending criteria came through in 2009 across all mortgage lending, and we actually sold it for £228,000, having had multiple viewings. In this case, overnight the market became a buyer’s market as mortgages were harder to get.
This sentiment is shared by Ray Boulger, from mortgage broker John Charcol.
Charcol feels that now is “arguably the biggest tightening in mortgage lending since 2009 because interest rates are increasing, and we are experiencing the largest rise in the cost of living since the 1980s.”
The difference between now and back then, Charcol says, is that “banks had a huge shortage of funds then, whereas now the banks are looking at what their customers can afford.”
The other sensitivity around lending is of course the Bank of England base rate, from which the various lenders adjust their rates. Some are playing fast and loose with this index at present.
But if the cost of money increases as seems likely, due to the notes of the wise committee who sets the rates, and lenders squeeze from the other end cutting down how much homebuyers or those re-mortgaging can borrow, we may well see house prices stagnating in Q3 of 2022.
Leading proptech company Property Deals Insight seeks funding for SaaS solution
Having secured a place on this year’s REACH scale-up accelerator, Nitin Aggarwal, CEO of the proptech SME Property Deals Insight, is now heading up a funding round to secure capital to grow the business even further.
Having just returned back to his London base from international travel, Nitin explained:
“As the founder of Property Deals Insight, I’ve transformed my vision into an incredible new SaaS platform that delivers clear and accessible data to anyone buying a property or working in the property industry. And recently I was lucky enough to make it onto the largest global accelerator in real estate on the globe.
“Our software has been honed to perfection over time, using comprehensive data drawn from multiple sources over many years. It delivers instant information to anyone looking for a property or needing to check out a potential purchase.
“With data from 27 million+ UK homes available at the click of a mouse, Property Deals Insight is a powerful tool for property sources, estate agents and property investors, taking the guesswork out of profitable property purchases. We have a multiple personae client bases.
“The funding we are looking to secure is to further build our sales arm, and increase our market awareness and penetration because we are the best-kept secret and our automated valuation model which powers the whole enterprise is where the huge value sits.”
What is impressive about PDI is that Nitin developed the software out of frustration that there just was not an effective automated valuation model with enough datasets to help with multiple problems. For example, how could a property sourcer or investor know the correct value and yield of a property?
The Property Deals Insight solution includes local area analysis, so recently sold price overlaid with bespoke algorithms with exact prices per square meter. Also, cash flow and return on investment (ROI), providing a dynamic cash flow that shows users how they get their investment back and at what stage. Users can even predict the future; if they are thinking of immediately selling an investment they are able to see the likely return using that strategy.
In fact, the service also helps property professionals find deals as it cleverly analyses risk and reward on any property asset, it gives an instant digital overview of all the complex factors which go together to make up the true value of a property.
For further information, or for anyone who is looking to invest in the digital transformation of real estate, contact can be made to Nitin through www.propertydealsinsight.com.
Andrew Stanton is the founder of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.