What makes a good lender? The key elements to recognise your loan partner

Many brokers and borrowers will be wondering about what makes a good lender in the current market. High street banks and mainstream lenders have struggled to adapt. As inflation and interest rates started increasing, deals were pulled from the shelves, while criteria tightened.

This left brokers with limited options. There could have been buyers out there who wanted to jump on subdued property prices. But their brokers may have found it difficult to find funding for these deals. A frustrating position to be in.

But, we’re starting to see recovery in the economy. Inflation is easing, the UK has so far avoided an expected recession, and there’s a surprising amount of money in the public coffers. There could be more appetite for property on the horizon. Brokers may be kept plenty busy as we move into the summer months.

The question of what makes a good lender will become increasingly important. We think the answer lies in how lenders compliment what brokers bring to the table. Lenders need to sync up with, and mirror the services brokers provide to their underlying borrowers.

A good lender could be seen as one that embraces a can-do attitude, especially after the months of hesitation we’ve seen. One that prioritises proactivity, can be reached without delay, and is always focused on what’s in the best interests of property investors.

To achieve all this, there are a few key elements that lenders should focus on, or embody.

Source: Reuters, BBC, Financial Times

Communication is key

It would be impossible to fully get to grips with a brokers’ cases without effective communication. A full understanding of each and every case is vital to ensure that the client is getting what they need. Furthermore, communication is needed throughout the loan so that the broker and client both understand where the case is in the process. If there is a delay, letting everyone know as soon as possible is imperative.

This works both ways too. What makes a good lender is not only defined by what they say, but also how they listen. Where brokers have questions, lenders should respond clearly, and concisely. In this rapid market, an uncertain or opaque lender will raise red flags. It’s already clear to see how important this all is for brokers.

Communication from lenders ahead of the new consumer duty deadline has been deemed a leading issue for brokers, according to a recent survey. Also, additional research from late 2022 showed that brokers believed the mortgage market was broken, and that lenders needed to listen more.

Unfortunately, many lenders do not seem to be heeding all this. In December, broker satisfaction with mortgage lenders dropped to the lowest level recorded outside of the pandemic.

Source: Mortgage Solutions, Mortgage Strategy, FT Advisor

Experience and confidence

We’ve seen what happens when lenders underestimate the challenges of the market. Or, worse still, treat it flippantly. Many have entered the specialist market over the years, only to leave once the first road bumps emerged.

More recently, many high street banks showed their inability to work with uncertainty. In September 2022, the wider financial markets were not shy about their disdain for then Chancellor Kwasi Kwarteng’s mini-budget.

Panic and uncertainty set in. As a result, nearly a 1,000 mortgage deals were pulled overnight. What kind of options did this leave brokers with?

We think being able to handle the economy, in both good times and bad, is a defining factor that separates good lenders from naïve ones. Brokers, borrowers, and consumers all likely understand that the economy won’t always be in a perfect condition. There’s going to be difficult periods.

House prices will drop from time to time, costs will rise, and we won’t be able to predict every eventuality. Continuing to issue funding despite these issues is what makes a good lender.

Source: Mortgage Finance Gazette, The Guardian

A good lender has the capabilities to act on their promises

Ultimately, what makes a good lender is the ability to provide brokers with what they need, when they need it. Lenders don’t want to fall into the trap of overpromising, and underdelivering. Brokers will likely place their confidence in lenders who have robust, diverse funding lines, transparent fee structures, and a variety of products available.

Lenders need to play their role in instilling confidence in the future. Tailored, flexible lending practices will benefit the entire market over the long-term. There’s little point in offering a range of products to brokers, if they come with endless caveats.

Indeed, it appears some lenders are struggling, and perhaps even hesitant to meet the demands of the market. Mortgage approvals fell to the lowest level seen since the start of the pandemic in December and even in the supposedly more flexible specialist industry, brokers are hitting roadblocks.

A survey of brokers in the specialist mortgage market revealed many struggled to find homes for their complex cases last year. Specifically, this included attaining funding for borrowers with adverse credit histories, foreign income, self-employed income, or those with CCJs on their records.

A good lender is, to an extent, one that doesn’t consider itself a lender at all. It should view itself as a partner for its brokers. By working towards shared end-goals, we can move forward collectively.

Source: Sky News, United Trust Bank