The Intermediary – September 2025 - Flipbook - Page 70
S E C O N D C H A RG E
Opinion
To lend or not to
lend, that is
the question
E
ven though the Bank
of England lowered the
interest rate recently,
it hasn’t stopped the
overwhelming evidence
that the UK’s finances
are far from ‘stable ground’.
Apart from the inevitable challenges
surrounding mortgage funding in
the medium to longer term, a more
immediate issue comes into focus.
This concerns how lenders measure
income considerations in the here and
now for potential borrowers, as well
as their future prospects for continued
employment in the longer term.
With the economic outlook looking
decidedly gloomy, and a property
market very different from the
post-lockdown boom period, many
prospective buyers – struggling with
cost of living rises – pose a different
underwriting challenge to lenders.
Lenders must satisfy themselves that
the customer not only has the ability
to repay, but also the ongoing intent
to do so.
Underwriting has always been a
balancing act between the application
of lending criteria, judging the
customer’s circumstances and their
past history, and how it all adds up
to them being a ‘good payer’ over
the mortgage term. In these days of
lending by algorithm, it is refreshing
to see more lenders across the
lending spectrum no longer reliant
on the ‘computer says no’ school of
underwriting.
In the second charge sector
particularly, underwriting generally
remains a more human experience,
with an emphasis on the client’s
individual circumstances as much
as slavishly following the criteria
guide. Leaving aside the property
being sound and valued correctly,
underwriting still boils down to
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The Intermediary | September 2025
two main elements, ability to repay
and looking at past and present
creditworthiness.
Lenders have to consider normal
affordability protocols, but how does
that fit with the current circumstances
of higher costs of living?
Inflationary pressures on the
costs of basics like food, gas and
electricity – allied to a job market
that has stagnated with salary freezes
becoming more common – does not
give people much room for manoeuvre
when budgeting.
Lenders see many cases where the
customers can evidence affordability
at the time of their application, but
what about their ability to repay when
household costs are increasing?
While economic downturns have
been a fixture over the past 30 years
or more, every lender needs to keep
a weather eye on potential future
issues that could affect the ability of
customers to continue to maintain
mortgage payments.
Provided the customer qualifies on
today’s criteria, taking into account
current surplus requirements and
stress tests, then the lender is perfectly
entitled to lend.
However, lenders need to
be constantly aware of the allencompassing compliance oversight
by the regulator under Consumer
Duty. The likelihood of a challenge of
their lending stance, even at a previous
time, is an ever present concern.
While the regulator is currently
working on removing some of
the ‘blocks’ to lending put in place
aer the Credit Crunch, there is no
guarantee that will extend to the
retrospective analysis of lenders’
underwriting.
Funding is not currently a problem
in today’s market, and lenders
and their funders are keen to lend.
LAURA THOMAS
is regional sales manager
at Equifinance
[In second charge],
underwriting generally
remains a more human
experience, with an
emphasis on the client’s
individual circumstances”
Underwriting, though, is key to
making sure that ‘good’ lending is
paramount, and that caution is at the
forefront of lenders’ minds.
With the housing market cooling,
the next challenge is almost upon us. If
house prices drop – and some pundits
have claimed that a drop of 10% is
not beyond a reasonable estimate – it
poses an added challenge on top of
affordability and intent to repay.
It could be argued theoretically that
this is a clear indication of potential
financial stress with which lenders
are going to have to contend – and all
without the benefit of a crystal ball.
In the second charge market,
and especially at Equifinance, our
aitude is to take a common sense
approach and rely on the experience
and knowledge of our underwriters
– backed up by the increasingly
effective credit checking facilities
available to us.
By not relying on affordability tests,
we can still steer a more consistent
course, through which advisers
can feel that their clients are being
assessed fairly, without compromising
underwriting integrity, and still
satisfy the regulator. ●
