The Intermediary – October 2025 - Flipbook - Page 63
SPECIALIST FINANCE
Opinion
Affordability
holds the key
T
he lending market has
been through one of the
most turbulent periods
in recent memory.
Interest rate volatility,
higher funding
costs and persistent affordability
challenges have reshaped how brokers
and landlords approach property
finance. While there are early signs
of stabilisation, the aershocks of the
past two years are still being felt across
the industry.
Brokers, as always, sit in the middle
of that storm. They’re navigating
client expectations against a backdrop
of tighter criteria, rising operational
costs and renewed regulatory focus on
responsible lending. Conversations
that used to take hours now take days.
And for many, the biggest challenge
isn’t the rate itself – it’s finding a
lender whose approach is clear,
consistent and aligned with real-world
borrower circumstances.
Affordability pressure
isn’t going away, but it
can be managed more
intelligently through
consistent lending
criteria [...] and genuine
dialogue between brokers
and lenders”
Affordability remains the defining
issue. The combination of higher
stress rates and stricter debt coverage
ratios has limited what borrowers
can achieve, particularly in regions
where yields are lower and property
values are higher. Many landlords
in the South East, for instance, are
finding that traditional affordability
tests simply don’t match the reality of
their portfolios.
The pressure is only set to grow,
with billions of pounds of mortgages
due to roll off low fixed rates agreed
during the pandemic. As those loans
refinance at today’s higher rates, the
affordability struggle will remain a
clear and present challenge for brokers
and borrowers alike.
At the same time, there’s a growing
divide between the products brokers
want and the ones that fit affordability
calculations. 5-year fixed deals
have dominated because they help
borrowers pass stress tests, but they
don’t always suit clients who want
shorter-term flexibility. In a calmer
rate environment, that imbalance
needs to be addressed if the market is
to move forward.
That’s where specialist and business
banks can make a real difference. Our
role isn’t just to lend money, but to
make borrowing work – to create a
framework that enables good deals to
get done while maintaining prudence.
Listening to brokers is crucial in that
process because they see the pinch
points before anyone else.
Enhancing transparency
At Redwood Bank, those
conversations have shaped several
recent adjustments to our lending
proposition, all focused on improving
affordability and transparency,
particularly for commercial and
mixed-use investors.
We’ve reduced our debt service
coverage ratio to 130%, lowering
the rental income hurdle relative
to the loan amount. This opens
opportunities in higher-value, loweryield areas where clients have strong
covenants, but affordability has been
difficult to evidence.
We’ve also reduced stress rates
across residential and commercial
lending, making it easier for
borrowers to secure funding on 2- and
TOM WORBEY
is senior lending product
manager at Redwood Bank
3-year fixed or variable terms.
Alongside that, we’ve extended the
maximum term on commercial loans
to 30 years, giving brokers greater
flexibility when structuring deals
and improving affordability over the
long term.
Finally, we’ve introduced a more
structured, LTV-based pricing model
to make our rate framework clearer
from the outset. Our alternative fee
product can also help address the
refinancing challenge by improving
affordability options for borrowers
whose loans are maturing from the
low-rate, Covid-era period.
None of these measures are about
short-term positioning. They’re
about helping brokers and borrowers
find stability in a market that’s still
recalibrating. Affordability pressure
isn’t going away, but it can be managed
more intelligently through consistent
lending criteria, transparent pricing
and genuine dialogue between brokers
and lenders.
Lender relationships
Looking ahead, I believe the next
phase of recovery will be defined
not just by rate movements, but
by relationships. Brokers want to
know they can pick up the phone
to a lender who will listen, respond
quickly and give a straight answer.
For business banks like Redwood, that
means maintaining flexibility while
staying grounded in common sense
and responsibility.
If the past two years have taught us
anything, it’s that clarity and trust are
every bit as valuable as competitive
pricing. Those are the foundations
that will keep the market moving and
help landlords and SMEs continue to
invest in Britain’s future. ●
October 2025 | The Intermediary
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