Understanding the challenges of an evolving mortgage landscape & how lenders can support borrowers as interest rates rise.

As the Bank of England continues to hike the base rate – which now sits at 5% – it’s clear that borrowers are grappling with a complex lending landscape that is likely to present challenges for a sustained period of time.

As such, to a greater extent than ever, it is important that homeowners and investors seek expert advice, and lenders have a vital role to play in ensuring that they are able to continue to invest in the UK property market with confidence in the coming months.

Understanding the challenges that borrowers are facing

To delve deeper into the challenges that borrowers are facing at present, Butterfield Mortgages conducted a survey of 667 UK homeowners*?to explore how they are navigating the evolving mortgage landscape as interest rates continue to rise.

According to this research, almost a third (27%) mortgage customers are turning to overpayments to reduce their repayments as interest rates rise; interestingly, this figure rises to 49% among those borrowers who are on a tracker or standard variable-rate mortgage.

This suggests that borrowers are taking a proactive approach to maintaining the affordability of their mortgage as the likelihood of further interest rate hikes increases, potentially reducing their overall debt burden further down the line should rates grow even more dramatically. Indeed, 25% have re-mortgaged to secure a fixed rate.

Elsewhere, the survey also revealed that the high interest rate environment has caused some people to adjust their investment strategies. Indeed, a fifth (20%) of borrowers have delayed plans to buy a new home in the last year, while 13% have opted to downsize or move to a cheaper property in order to better manage their mortgage repayments.

However, while some people have delayed their plans, a larger proportion (22%) of mortgage customers have decided to accelerate their home-buying plans. This indicates that a greater number of homebuyers and investors are keen to capitalise on current mortgage rates, perhaps because they envisage these to increase in the coming months and wish to secure the best possible deal.

Supporting borrowers as rates rise

For obvious reasons, lenders are unable to provide borrowers with the low rates that have supported their investment plans for the last decade or so. However, there are other ways of ensuring that homeowners and investors can better navigate the mortgage landscape and continue to capitalise on the opportunities within the UK property market.

The first way is through high-quality customer service, noting that less than half (44%) of those surveyed felt they had received adequate support from their mortgage provider. With the myriad of challenges facing borrowers at present, lenders who are able to communicate with their clients transparently and sensitively about how their mortgages may be impacted in the coming months, will provide the most value. In addition, by providing comprehensive and accessible resources about how interest rates may affect mortgages, lenders can better support borrowers to understand the changing mortgage sector, further enhancing their customer service and creating lasting value for their clients.

Meanwhile, lenders with a personalised and comprehensive lending approach have the capacity to assess an individual's complete financial circumstances and affordability, enabling borrowers with complex financial situations to obtain financing. This inclusivity facilitates a broader scope of homeowners and investors to participate in the UK property market and is expected to drive the demand for specialised financial products in the future.

The ability to cater to each client as a unique case is especially valuable for lenders operating in the prime central London market, which enjoys demand from a significant number of high-net-worth individuals and foreign investors who often face challenges in securing loans through traditional avenues.

Finally, amidst the current landscape where lenders are withdrawing certain mortgage products from the market, borrowers are increasingly prioritising certainty and flexibility from their mortgage providers. Lenders who can provide stability and assurance by offering a diverse range of mortgage products and maintaining a steadfast commitment to their existing customers will play a crucial role in meeting this demand.

By prioritising transparency, clear communication and proactive support, these lenders can instil confidence in borrowers, ensuring they have access to reliable mortgage solutions and minimising the disruption caused by market fluctuations.

Concluding thoughts

The bigger-than-expected interest rate hike is certainly likely to pose further challenges to borrowers. However, as speculation remains rife about its impact on the lending landscape and the UK property market, we will remain steadfast in our mission to deliver the customer service, certainty and flexibility that borrowers ?need in the months ahead.

*The market research was carried out between 9th and 14th June 2023 among 2,000 UK adults via an online survey by independent market research agency Opinium.

Opinium is a member of the Market Research Society (MRS) Company Partner Service, whose code of conduct and quality commitment it strictly adheres to. Its MRS membership means that it adheres to strict guidelines regarding all phases of research, including research design and data collection; communicating with respondents; conducting fieldwork; analysis and reporting; data storage.

The data sample of 2,000 UK adults is fully nationally representative. This means the sample is weighted to ONS criteria so that the gender, age, social grade, region and city of the respondents corresponds to the UK population as a whole. These questions focus on a collection of 667 UK adults who have a mortgage.

Alpa Bhakta is the CEO of?Butterfield Mortgages, a London-based prime property mortgage provider with a focus on the needs of UK and international HNWIs.?

Butterfield Mortgages Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number: 119274).