There’s a perfect storm brewing in the UK and it is household budgets that are taking a battering. 74% of people think the cost-of-living crisis will have a negative effect on them, and 23% of adults said it was ‘very difficult’ or ‘difficult’ to meet household bills in March 2022 compared to the same time last year[1]. How did things get so bad and how can mortgage brokers navigate their customers through the choppy waters ahead?
When you think about the causes of the current cost-of-living crisis, the war in Ukraine is probably the first thing that springs to mind. But, there’s much more to it than that.
- COVID-19 brought social and economic disruption and devastation to many UK industries.
- An exceptionally cold winter in Asia in 2020/21 meant rocketing energy demands on international wholesale markets.
- The prices of goods on shelves have increased as distribution costs have rocketed due to a shortage of drivers and fuel.
- Escalating transport and distribution costs also have a knock-on effect on the price of raw materials which get passed to the end-customer.
All this has combined to mean we are seeing inflation at its highest level for 40 years as it hit 9.1% [2] in the year to May 2022, also driven by food, non-alcoholic beverages, housing, water, and energy.
Where are we now?
Headline statistics from The Money Charity[3] paint a picture of the current state UK finances:
- £2,192 – the average credit card debt per household in April 2022
- 7% – the change in outstanding credit card balances in the year to April 2022
- 7p – the increase per litre of unleaded petrol in May 2022
- 8% – the increase in the average price of a house for first-time buyers in the year to April 2022
- £3,817 – the total of unsecured debt per UK adult in April 2022
- £64,286 – the average total debt per UK household in April 2022
- 26 years – time to save for a first-time buyer’s house deposit*
With all the doubt and negativity surrounding such a deep crisis, mortgage lenders are updating their affordability models. This, coupled with customers’ uncertain financial situations is making life harder for mortgage advisers and slowing down their processes.
This means affordability is increasingly becoming the prime consideration and the best place to start for many brokers when sourcing a mortgage, and it can strongly influence where they place a customer’s business. This could even be with a lender they might not have initially considered.
£64,286 – the average total debt per UK household in April 2022
Making affordability sourcing simple
With lenders re-examining their affordability modules it can be hard for an adviser to know where to start to get up-to-date information. Visiting many different lenders and rekeying customer information on property, income, debt, and expenditure into their affordability calculators can be a time-consuming job. But it doesn’t need to be like that.
Our affordability sourcing platform, Affordability Brain, makes this onerous task quick, simple, and accurate as results come back directly from lender affordability calculators.
Customer information is keyed into a single standardised form which is then sent directly into the affordability calculators of all the lenders on the platform. And those lenders account for 85% of mortgages sold in the UK.
Results return within a minute. They are collated and displayed in an easy-to-understand format so an adviser can easily identify the perfect product for customers and manage their expectations as to how much they can borrow. Also displayed is the amount the lender is willing to lend, which could possibly be more than the customer is asking for.
With Affordability Brain, there are no more sleepless nights about compliance either with a lender’s affordability calculation being recorded to give an adviser a full audit trail.
More than just results
Results from lenders can include a breakdown of values across three areas for transparency and clarity:
- Loan to Requested – Amount requested likely to be affordable
- Loan to Purchase – Maximum based on property AND income
- Loan to Income – Maximum based purely on income
A search within Affordability Brain divides lenders into four categories for convenience:
- Affordable – lenders who will lend the required amount, together with the amount they could offer
- Not Affordable – lenders who will not lend the required amount, together with the amount they could offer
- Lenders Excluded – lenders who will not lend the required amount, together with the reason why they are excluded
- Lenders Failed – lenders who failed the initial search
Affordability Brain is part of a suite of solutions that enable an adviser to source products based on product, criteria, and affordability, all in a single journey. This gives the ability to combine all three elements to best match a client’s needs to products available and get a clear understanding of what each lender is willing to lend with the utmost clarity for your customers.
Finding the perfect mortgage for clients can still be quick and easy despite the challenging financial environment if you embrace the use of time-saving technology. Why not test drive Affordability Brain with a free trial and find out more about Mortgage Brain’s other leading solutions.
* Saving at an average rate out of average UK income (at October to December 2021 rate of household saving).
