The end of year ‘Price War’ appears to be in full effect and will clearly be benefiting some borrowers – most notably those who are coming to the table with 40%-plus equity/deposits. But what about the rest of the country? How helpful is it, as a mortgage broker, for your clients to be looking at their regular MoneySavingExpert newsletter and finding out that HSBC are currently offering a 0.99% two-year product which, quite frankly, the vast majority of them are simply not going to be eligible for?
Managing client expectations in a ‘Price War’ period can be pretty challenging especially when they see rates advertised and marketed which are significantly lower than those they are currently paying or they thought they could secure. Which is why, for all the benefits of a low interest rate environment and the fact lenders are scrapping amongst themselves to bring in lower rates for lower LTVs, I would also like to see price changes introduced alongside more focus on criteria development.
The simple fact of the matter is that while advisers lives would be much easier if the vast majority of their clients were all the same – that is employed, prime borrowers with significant amounts of equity/deposit to put towards a deal – the truth is often very different. Indeed, I suspect most advisers would be rather bored if all their clients were the same, so it’s lucky that no two borrowers ever have the same wants, needs or circumstances.
Therefore, throwing all efforts into dropping two-year 60% (or less) LTV rates will definitely allow the lender to pick up a small amount of new business but I suspect there are greater opportunities to be had in looking at the needs of those borrowers who, perhaps ordinarily, would have had no problem getting a mortgage but now find themselves (through no fault of their own) stuck out on the proverbial limb. I’m talking about the self-employed or those we might deem ‘mortgage prisoners’ or those who have the slightest bit of adverse credit from the dim and distant past but have now been clean for a long time.
All these borrower groups, and many more besides, would certainly benefit from more lenders looking at their circumstances rather than giving a wholesale and resounding ‘no’. The self-employed are certainly a case in point given the huge increase in the numbers of people who have begun working for themselves since the Credit Crunch and recession began. These are people who did not feel sorry for themselves but, got off their backsides, and looked to establish their own employment opportunities. Many of these people are now running successful businesses, are employing other people, and contributing a significant amount to the overall economy but there is still a reticence on the part of a number of lenders to offer them the mortgages they need and not take an old-school approach to company accounts, etc.
Therefore while the focus at present might be on price let’s also not forget circumstance – as the FCA has also pointed out large numbers of lenders seem quite happy to let borrowers sit on expensive rates when they could be moved to cheaper offerings which would decrease their overall risk of defaulting. The MMR rules allow for this ‘transitioning’ but it would appear many lenders have little interest in supporting this move.
Therefore, as we all know, while price is important, it’s not the be all and end all. If it was then those offering sub-1% rates would be hoovering up all the business. This isn’t the case and won’t ever be so because of issues like client circumstances and the ‘small’ matter of lender service. Those lenders who look at cost and criteria are the ones who are likely to benefit most in the long-term.
Richard Adams is managing director of Stonebridge Group
