"Pricing, and certainly rate cuts, will always prick up the ears of clients so advisers need to let them know exactly what is available"
At the start of last month, I read a piece which asked whether the ‘mortgage price war’ had already concluded? Various contributors ventured it had, citing stubbornly high inflation as an indicator of Bank Base Rate (BBR) not just staying high, but potentially continuing to rise in subsequent months.
While this was plausible – and we welcome the Monetary Policy Committee’s decision today to hold rates again - we should remember that BBR changes merely influence rather than control or dictate mortgage product pricing.
What has been clear is not just the baking-in of this year’s increases to BBR, but swap rates remaining relatively stable, and perhaps the most significant factor today is what lenders want (and need) to achieve in terms of mortgage lending volumes.
Talk of a price war being already over raised my eyebrows because what I believe we saw in early October was just a slight lull in price cut activity, not so much in a full-scale mortgage price war, but just several minor skirmishes.
And, since then, what advisers will have seen only too well is a sustained series of lender interventions, especially in the mainstream mortgage market where we have a growing number of price cuts, not just at lower LTVs, but right across the board.
In recent weeks, Santander has lowered rates by up to 56 basis points and has been particularly active in the 60% LTV five-year fixed-rate market, as well as within two-year fixes, no doubt for those who sense we may see something of a significant shift in the rate environment over the next 24 months or so.
Santander follow the likes of the Halifax, Nationwide, and others, who now have five-year fixes, for 60% LTV borrowers, all quite significantly below 5%. Indeed, they are around the 4.8/4.9% mark, and one wouldn’t be surprised if other lenders not only follow suit, but continue to inch down further, particularly for those borrowers with higher levels of equity/larger deposits.
If we are looking at anything like a price war, it feels as if we’re just at the start of this process, and when you look at where that ‘war’ might be fought, then you would have to say the remortgage sector appears to provide fertile ground for healthy competition.
Statistics tell us that approximately 1.6 million borrowers are poised for product maturity in 2024, and there’s no doubting that if lenders want to secure a large proportion of that business, their new business pricing will be keen and competitive.
Lenders will of course respond with attractive PT rates, plus of course promote the benefit of not having to go through the same affordability checks and the attraction of a streamlined process.
Nevertheless, as advisers will know only too well, particularly for those borrowers in changed circumstances, opting for a PT straight away rather than properly exploring alternatives in the marketplace, could of course mean that consumers end up with a sub-optimal product.
Which leads us back to those product rates which, despite there always being the potential of a future increase in BBR (as the Governor said today) or swaps moving, look likely to be competitively priced in the weeks and months ahead. It is extremely likely that lenders will want to kick-start 2024 with a robust pipeline, and one way they can look to achieve that is with criteria and mortgage pricing plus product options which appear to look much more competitive than they have done for some time.
Having spoken with one major lender recently, they are certainly preparing for a competitive end to the year regarding mortgage pricing. The only consideration, they said, will be the pressure for them and their competitors, to increase the interest rates on their savings products. If they are forced to be more generous there, it could limit what can realistically be achieved with mortgage rates – it will be a balancing act for most.
Regardless, advisers have not only an opportunity to make a lasting and positive impression with their existing clients who are coming to the end of their respective deals, but also with those other borrowers who may not have used an adviser before or are simply considering a PT as the path of least resistance.
Pricing, and certainly rate cuts, will always prick up the ears of clients so advisers need to let them know exactly what is available, and the money it can save them on similar, but higher-priced, products which would have been available a few weeks ago. Show the value of booking a rate now, and the option to change should rates continue to be cut.
I’ve no doubt that, over the remainder of the year at least, we’ll continue to witness a ripple effect as lenders reduce their rates to attract more business. Advisers must make the most of this, not just for their clients, but to enhance their own business prospects.