There are hundreds of different market aspects shifting and reshaping our sector every single day, from the political to the economic, from taxation to the regional nature of UK housing, from pricing to lender service levels, plus of course the global situation which plays into the cost of living, affordability, etc.
All swirl around our environment and make relatively simple client questions such as ‘Shall I wait for rates to drop before purchasing/remortgaging?’ somewhat difficult to answer, particularly when individual circumstances make any sort of uniform response impossible.
However, when it comes to rates and pricing, you quickly learn that you cannot advise on a future which might never come to pass. You can only advise on the here and now, and if that recommendation is not acceptable to the client, then so be it.
Of course, that doesn’t stop anyone from speculating on where we might be heading, particularly in a market where over the course of the last few months the direction of rate travel has been upwards only. Which begs the question, have we reached a peak?
We all anticipate that Bank Base Rate is going to move up again – possibly by 50 basis points – at the next MPC meeting, but at the same time over the last week or so, there has been a trickle of lender communication detailing rates being lowered.
This has been particularly noticeable in the lifetime mortgage market, but that doesn’t mean we have any sort of wider mortgage trend. In fact, when it comes to lifetime mortgage providers – who undoubtedly suffered during that period when advisers couldn’t meet customers face-to-face – it might simple be a case of bringing in as much business as possible while it’s there to be taken.
Certainly, the fundamental demand drivers for equity release/lifetime mortgage business are seriously strong at present, given that cost of living increases hit those on fixed incomes the most. Plus, it’s older homeowners who are likely to have significant equity to be released. It may therefore just be that some lifetime mortgage providers want to take as much business as possible right now while demand is strong, and the best way to do this is by reducing rates.
So, the overall mood music seems to saying rate cuts are still the exception to the norm, and that we can expect this direction of travel upwards to continue for the rest of the year and probably into 2023.
Different lenders will weave their way through this market in different ways though, and will need to react in order to maintain service but also secure the business that is still very much out there.
So, for example, when rates did start to move north, we were writing a lot of five-year business. Clients wanted that long-term security and certainty, and rates were not too high above the point they had bottomed out at.
Now we are in a very different place. Five-year rates are double, even treble, what they were back in October/November last year, and while we anticipate rates continuing to increase, hopefully once inflation starts to come back down, there could be a relatively quick softening.
It means that instead of writing 70% of our business at five-year fixed-rates recently, we have been doing the same amount at two-year. That’s in anticipation of the mortgage market having normalised in 2024 and rates having moved back down.
Also, we cannot move away from the interconnectedness of the mortgage market and how lenders move around each other, redefining the sector on a daily basis. That shift for many has been to keep on increasing rates, jumping over competitors, not wanting to be ‘last lender standing’, etc.
But, as one lender pointed out to us recently, that approach hasn’t really worked in terms of slowing down their business. They kept putting rates up and the business flow didn’t stop – it gets to a point where you can’t keep putting rates up further and further, because a) it looks like abject profiteering, b) it doesn’t slow volumes down and c) is it the right thing to be doing in cost of living crisis anyway.
And therefore that lender has effectively stopped lending for the time being, it’s working through its pipeline, and has taken itself out of the market in order to secure some sort of normality, and not add to the rate jumping game that is being played.
We understand this is a difficult series of decisions to have to make. While you are trying to slow down, your loans are effectively becoming more and more profitable, and therefore the temptation might be to keep on keeping on. However, the sensible decision is not to do this, not to add to the maelstrom and to keep a semblance of order.
However, this is far from the norm, and for that reason the likelihood is that we’ll be dealing with the same sort of market, probably for the rest of the year and beyond. It makes these times tricky for advisers, but the greater degree of certainty and clarity we can get from the lender community about their plans, motives, and ambitions, the better service and advice we’ll be able to provide to clients.
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