Be prepared for post-contract variations

Since its closure last year, the housing market has seen a remarkable recovery.

March 7, 2023
July 27, 2021

Since its closure last year, the housing market has seen a remarkable recovery. Demand for property has risen to record levels and this has contributed significantly to strong house price growth across the country.

For those in the mortgage market – lenders, advisers, and other service providers – this has led to a busy few months, with many working around the clock to process client applications, often in time for the government’s stamp duty holiday.

Government incentives, such as the stamp duty holiday and 95% mortgage guarantee, along with a nationwide housing reassessment have been key contributors to the bounce back. Existing homeowners, though, have also been playing their part. That is because many are looking to take advantage of their growing housing equity to borrow against the value of their property.

Of course, a homeowner wanting to borrow more against their home has several options and it is in helping them to understand these differing routes that advisers and lenders can build customer loyalty by supporting a borrower to achieve their financial goals.

Unlocking extra housing wealth

If an individual is fortunate enough to be nearing the end of their existing mortgage, they could unlock additional equity, should they choose to remortgage. This can be one of the most straightforward options, but it relies on chance. Unless they opted for an ERC-free mortgage, choosing this route would either mean paying a potentially significant exit fee, or having to wait until their mortgage product term finishes. While this could work well in usual times, in the wake of the crisis many want to unlock their money more quickly. They may need the money to fund home renovations, which is becoming popular at the moment. This urgency means that many may wish to look at other options.

A second charge mortgage could be right for some, as it allows homeowners to unlock the cash they need, but even in the current low-interest climate, these mortgages are comparatively expensive, and advisers can find themselves in an uphill battle convincing client of the merits.

The final and likely most appropriate option for the many people wanting to renovate or extend their home is to renegotiate the terms of their current deal, often with a view to borrow further against their existing property. In the technological age, this should be the simplest process and yet many lenders still face challenges when processing a post-contract variation(PCV). It does not need to be this way. The technology is now in place to make life easier for lenders by streamlining and automating the process.

Lenders need to be equipped to deal with post-contract variations

As the numbers of borrowers wanting to release money from their property with their existing lender increases, it is important that lenders are prepared to process these cases in an efficient and timely way.This is both key to reducing operational challenges but also retaining customers.

Helping to support lenders to achieve success in this area has been a key focus for finova. By using technology to streamline the process, our tools take the sting out of helping customers to flexibly change the terms of their current mortgage agreement.

Lenders need agility when it comes to dealing with PCVs –depending on the customer need, they will want the option to amend the term, the repayment method, and even the product on the existing loan segment. Having the ability to execute any of these requests with speed and agility means a lender can support multiple transactions within a single application.  Some customers also desire additional borrowing at the same time as an equity transfer. This can also be streamlined into a single application.

Some lenders may not be geared up for this type of processing yet, but the reality is that the “improve not move culture” in the UK is likely to continue, especially in the wake of the stamp duty holiday which has been instrumental in incentivising people at the top of the property ladder to move. With many more people expecting their lenders to help them leverage their housing equity, this is an area that the mortgage market needs to be getting right.

Today, customers are far more informed and have clearer expectations. Amazon Prime subscribers receive their packages within 24 hours, sometimes less, and beyond logistics, challenge banks – Monzo, Starling and Revolut – have raised the bar for customer service levels in the financial services industry. The mortgage sector needs to keep pace, offering customers a slick and efficient experience. Lenders’ solutions should make use of available technology and data, such as automated valuation models and house prices indices to save time. Equally, once terms have been agreed, funds should be sent directly and instantaneously to the customer, or solicitor.

We are working with lenders to try and make this challenge much simpler to overcome and so that they can effectively provide control and flexibility to their customers. With the right technology, PCVs can be a simpler and slicker process. One that benefits both the lender and the customer.