The latest gross lending figures from the CML for October reveal a market which appears to have steadied itself over the last couple of months, and one which you might anticipate a strong finish from up until the end of the year. October’s £20.6bn is just up on September’s £20.5bn, and although 5% down on the same month last year, 2015’s market was not being buffeted around by the major political shocks we have seen in the last six months.
Interestingly, the CML now estimates lending for the entire year will be in the £240-245bn arena, which would be an increase of 10-12% on 2015. Clearly, the pre-stamp duty purchase market in quarter one played a considerable part in this, after which we saw plenty of ups and downs, but with some stability as the year draws to a close. The current state of the mortgage market, say the CML, is one defined by strong demand, which has meant a pick-up in approvals, but also one in which the number of homes coming to market is still nowhere near enough.
In other words, people want to buy, but that shortage of housing supply makes it difficult and therefore borrowing to purchase is perhaps not where we would like it to be. This is why the remortgaging market is so vitally important to all market stakeholders at present; indeed the CML itself expects remortgaging to drive the market in the coming months, fuelled by increased competition and an existing borrower demographic that sees interest rate rises on the horizon at some point in 2017.
Advisers should therefore be doing all they can in the remortgage space because, quite frankly – and I know this has been said many times before – some of the rates available today are unlikely to be on the table in six months time. The cut to Bank Base Rate in August steadied nerves but there is an argument to suggest it was unwarranted, and one has to wonder – especially if we see the anticipated increase in inflation – when the MPC will make the decision to increase.
The other point in existing borrowers favour at present – especially those with 25% equity – is that we are motoring towards the end of the year. One has to wonder how some lenders are doing when it comes to hitting their lending targets for 2016 – I suspect, judging by the rates currently available, that they are behind the curve and looking for busy months to make it up in November and December. Increasingly, we are seeing long-term fixes coming in at spectacularly low rates – just this week we saw 1.84% from the Coventry for a five-year deal and there are a plethora of similarly priced deals available from others lenders under 2%.
These look incredibly good value, and they feed into an increased need from borrowers for certainty, especially in an economic and political world that seems anything but certain. Far better, many borrowers will think, to lock-in now for a three/five-year term and know exactly what they’re going to be paying every single month during that period. Recent research by LMS said that 23% of those looking to remortgage expect a Base Rate rise in 2017, which is up from 14% in September – I expect, as the months go by, that we will see more and more expressing the same view and looking to remortgage before that actually happens.
One also has to anticipate that as the ‘noise’ around the UK’s Brexit negotiations grow ever louder, the uncertainty related to our leaving of the EU will focus the minds of existing borrowers even further. Quite frankly, who knows what will happen and the impact it will have? Again, many will feel it is far better to know what you’ll be paying for your biggest financial commitment, than leave it to a marketplace which could see some quick rises in rates.
It is in this market situation where brokers should be leading the way and making sure existing clients are in the best mortgage place possible. How many, at the moment, would relish certainty? I’m sure many would, plus of course with each remortgage you have the opportunity to revisit all their other financial needs be that GI, protection – especially income protection which again reinforces the message around certainty. This is not simply about making the remortgage work and providing stability here, but also ensuring they have the right protections and coverage, especially if their circumstances have changed since you last arranged their mortgage.
The opportunities are there, it’s simply a question of communicating your worth, service and offering, and making sure your clients know they can find certainty from you during a period where that particular commodity is likely to be in short supply.
Richard Adams is managing director of Stonebridge Group