Thursday 22 September 2022 was something of a momentous day given the Bank of England’s Monetary Policy Committee (MPC) announced a 50 basis points rise in Bank Base Rate (BBR) taking it up to 2.25% – the highest in 14 years.
In less than a year we’ve seen BBR move from 0.1% to 2.25%, but as we all know, this really only tells half of the story because the movement in mortgage product rates has been much further and much faster.
Last October/November if you were ultra-fortunate in terms of your mortgage timings, a client wanting a 60% LTV five-year fix could have picked one up for under 1%. Those who were able to do so, are no doubt counting their blessings right now and thanking the adviser who was able to arrange this.
Now, and if you can get in before rates inevitably move up again, you would be fortunate to pick up the same 60% LTV five-year fixed-rate product much below 4%.
Advisers will not need me to point this out, but we’ve seen cases recently where the ‘payment shock’ for certain borrowers remortgaging right now means they are paying sometimes more than double their previous monthly amount.
As mentioned, there is a range of reasons behind this including the cost of money via BBR and swaps, but fundamentally a significant amount of the rises we have seen have been a result of lenders battling to meet demand, with not enough resources or capacity to service inflows, and choosing to raise rates in order to stem the flow of business.
Unfortunately, and I do have sympathy for lenders here, this is an industry that is completely inter-connected and, particularly in the mainstream residential space, it means the larger lenders tend to follow each other when it comes to such decisions. It has resulted in something of a merry-go-round of rate changes and rises which, I’m afraid to say, hasn’t produced the result we want – quicker processing times and an ability to deal with strong demand.
Instead, it leaves us in a position where product rates far exceed BBR during the middle of a cost of living crisis. As mentioned for those borrowers who are unfortunate enough to be remortgaging, or indeed looking to buy their first homes, right now there is something of a ‘perfect storm’ of challenges which are most likely going to mean they are paying significantly more for their mortgages.
Even more so, if they are not utilising the services of an adviser, because it’s clear that in a marketplace which is shifting and changing so often, without advice borrowers are likely to either be making rash decisions fearful of future rate rises, or they are simply not going to be able to secure the mortgage finance they need.
It’s why we’ve talked with our network firms so much recently about the importance of the remortgage space, given that – according to various lenders, including YBS Group – there is £100bn worth of mortgages maturing between now and the end of the year. Plus, of course, we are no longer at a point where borrowers are willing to hang on until closer to the end of their deal before making a decision. They want to take action right now, the earlier the better, especially if they have the opportunity to secure a new product six months prior to maturity.
Of course, the option to wait and see still exists. We may well have reached a rate peak, and for example, the decision to freeze energy bills might begin to bring inflation down to a point where the MPC feels it doesn’t need to act further.
However, that is a future that might not come to pass, and instead, borrowers are more likely to feel they should take action now for fear of the payment shock getting worse in the future, rather than better.
We understand this presents a series of challenges to advisers, not least the fact that – with returning clients – you are likely to be placing them on a mortgage with a much worse rate than the one they are coming off. However, this is all about managing client expectations about product availability and what is available right now, rather than what was the case two/three/five years ago. It’s about getting the best and most suitable deal in today’s environment, rather than one that no longer exists.
Advisers clearly have an opportunity to show their value and worth in spades here, plus of course to potentially help remortgaging borrowers in a number of other areas which might feel even more relevant today – protection being the most obvious one.
The recent decision by the MPC effectively fires the starting pistol again for many existing and would-be borrowers – advisers should be running alongside these clients to ensure they make it to the finish line.
Rob Clifford is chief executive of Stonebridge