As teachers and students of various ages have spent August nervously opening exam results following years of study that will determine their ability to progress to the next level, there’s one cohort for whom there isn’t a fixed end date to ‘exam’ stress: borrowers.
Because as a borrower getting a mortgage, especially a first mortgage, feels a bit like sitting an exam, doesn’t it?
The combination of more subdued house price growth, mortgage product rate reductions following three base rate cuts this year and income growth has undoubtedly eased housing affordability, but it’s not making the widespread change that many borrowers – like the teachers we were founded to support – need. Put simply, affordability remains a test that too many borrowers remain apprehensive to sit.
bit like a maths exam, the first part of the test for borrowers involves getting the sums to add up. Firstly they need to become budgeting experts, finding enough spare cash whilst renting (unless they’re able to stay with parents) to save a deposit of 5% or more of their dream home, plus saving enough extra to pay for all the house buying extras. This bit it crucial – if the sums don’t add up our pupils will fail at the first hurdle.
The next test is more like comprehension – borrowers have to understand a myriad of product and proposition information, wording, terms and conditions and be ready to answer endless questions, which can vary between lenders and may trip up borrowers at any moment.
For the students that excel in niche subjects there are additional papers to be sat– like complex borrowing or short term borrowing. They have to pass advanced versions of the tests, because their circumstances, the timing of their purchase, their dream home, age or finances are a little atypical. For this cohort the additional papers require significant extra investment of time, both in completing the exam itself and then being reviewed by an examiner.
If the borrowers are the pupils, how does everyone else fit in? I hear you ask.
I see the regulators as being a bit like an exam board. Their job is to set the framework and make sure everyone that passes deserves to do so. They set blanket rules about the questions that need to be asked and rely on the teachers to interpret those rules in a way that means the pupils can actually sit the exam.
As lenders and intermediaries I think we’re the educators. Whilst our roles aren’t exactly the same, together we form a combination of the teachers, lecturers, nursery workers and private tutors. We’re the ones the students are relying on to get them over the line, into the exam hall and smiling on results day
SO HOW CAN WE DO THAT?
Firstly we need to start educating borrowers before they even know there is an exam to be taken. We both want to be on the borrowers agenda as a go to option the minute they even start thinking about the affordability exam.
We can do that by letting them know we exist and explaining our roles clearly. Using language that makes it feel easy and gives them confidence. By being accessible. By showing them examples of pupils like them we’ve already helped.
Secondly we can make sure that we’re completely correct in our interpretation of the rules given to us by the exam board. We can use technology, and human expertise, to translate the rules and regulations in a fair way but also in one that makes it as easy as possible for the students who ask us for help to get it.
We do this by being data driven, by listening and learning – by seeing which pupils we’re best at helping and who we couldn’t, then working harder to change the way we operate to support them.
Thirdly we can represent the pupils back to the exam board above us. We can do this by collaborating as an industry and suggesting positive, workable change back to the exam board – or regulators as is the case.
I feel really strongly that come results day, whether that’s at age 25, 30, 35 or 40 all borrowers sitting the affordability exam should be expecting a pass.
Strides have already been made to help those who scrape a borderline pass – we’ve extended lending terms to 40 years, lent with smaller deposits of 5% plus, launched more realistic stress tests and constantly updated the product rate and term combinations to get them over the line.
But for those who fail the test, or who pass but in a way that now amount of stretching the term will actually help them buy a home we have to do more – we can’t rely on income growth, subdued house prices and lower mortgage rates alone – it’s not enough.
As a lender product innovation and technology are just two of the key areas we can and will ‘revise’ to help more pupils going forward. I’m hopeful that if we as lenders put the homework in in the same way that pupils do, future pass rates can and will get better, and then lenders, brokers and borrowers really can celebrate on results day.
