In an industry that never stops, it’s fair to say that we are all always busy.
In recent years, with financing prices at record lows, lenders have been part of a cat-and-mouse rate war trying to price mortgages sustainably to offer good long-term value to borrowers while maintaining service in a constantly changing environment.
Then, as now, rates changed regularly, products were withdrawn, and brokers felt like they were biting their tails to keep up.
Rate pulls are less of a challenge when prices are falling or flat, but things have now been turned upside down. It’s still busy, deals keep coming and going quickly, but as we all know, the rates are far from the lows we’ve seen in recent years.
And with this upward trend comes added pressure to act quickly to minimize the fallout for customers and lenders. I can really appreciate the frustrations brokers feel when products promised to customers increase before applications are submitted. As a lender, we really try to wait or give as much notice as possible when needed, usually at least 24 hours, but I know that doesn’t always help at the time.
Lenders’ current challenges stem from the speed and size of daily fluctuations that, if left unchecked, could turn a range into a loss in a couple of days. Daily increases of 30 basis points (0.30%) are not unusual at the moment and following the Chancellor’s mini-budget (September 23), we actually saw a daily increase of 100 basis points (1.00%).
It can also help you understand how and why mortgage rates are rising at a rapid rate.
I regularly see and hear many people conflate Bank of England base rate increases with mortgage rates, which begs the question why lenders raise rates more than the Bank of Threadneedle Street decision makers.
In reality, the latest base rate increase, and all the ones before it, only directly affect adjustable-rate mortgages, or trackers, so called because they are priced to track the base rate plus a percentage determined by lenders. However, with roughly 80% of borrowers on fixed-rate mortgages, that’s four out of five cases weighed on other factors.
Typically, a lender’s funding comes from a combination of wholesale markets, government funding schemes and, in our case as a building society, through members’ savings.
Typically, a lender’s funding comes from a combination of wholesale markets, government funding schemes and, in our case as a building society, through members’ savings.
While this combination of various methods provides lenders with greater stability, their individual composition is fluid, often volatile, and can change rapidly based on market performance.
Lenders’ cost of borrowing, and thus mortgage financing, has increased dramatically in recent months as a result of economic influences. Russia’s decision to invade Ukraine, the energy crisis, the need to curb inflation and the recent announcement of the mini-budget are some of the many factors that have a knock-on effect and force lenders to fix prices, not for the excess profits, but in many cases to avoid losses. .
In a nutshell, the bank’s base rate increased 2.15% in the last 12 months (from 0.10% to 2.25%), but two-year swap rates, which drive up mortgage financing costs at a fixed rate, they increased by 5.10%. (from 0.44% to 5.56% at 26 September).
It’s also very important that we stay on top of the market, as rates that don’t keep up with the rest can leave lenders vulnerable to being inundated with applications as customers pressure you for the best deals. . This can lead to service delays or what may seem like instinctive product recalls, so it’s a good balance for lenders to get the price right in a fast-moving market while providing the value borrowers need.
Given that many forecasters suspect that we will be in this rising rate environment for the foreseeable future, it is important that we all continue to work together as much as possible.
Packaging a case as per the lender’s requirements and submitting all documents at once, for example, can often help avoid delays and help you get the rates you’ve promised clients, while lenders must also play their part in communicating when and why. you need to make changes to the ranges.
The more collaborative we all continue to be, the more we can help borrowers in what are shaping up to be increasingly difficult times for homeowners.
Jeremy Duncombe is CEO of Accord Mortgages
