Markets calmed but mortgage pricing uncertainty remains
It appears that the calm and certainty the markets were crying out for has, at least temporarily, come to pass with the election of Rishi Sunak to Prime Minister and the reversal of the vast majority of measures announced in the ill-fated ‘Mini Budget’.
There’s no doubt that the price of long-term gilts felt the full force of this ‘fear factor’ – something that no one wished to see. Those sharp increases effectively ‘spooked’ lenders, worried about just how pricey swap rates might become and the effect on mortgage product pricing and margin management.
Advisers will know only too well what this did for workloads, having to reassure clients many of whom were understandably panicked about what the cost of their mortgage might be, if volatility continued. Thankfully, the rowing back on most of the unfunded measures in the ‘Mini Budget’ restored some confidence which I think will be maintained.
Certainly, the early signs are much more positive. Quick off the mark were a number of lenders, who clearly saw a good news story to be capitalised upon in terms of reducing rates across a number of residential products.
HSBC moved to cut rates on 65/70/75% LTV five-year fixes plus some two-year trackers, while Santander also announced cuts to both purchase and remortgage residential rates, notably at higher 90% LTV five-year fixes.
There were also similar announcements from Barclays, Coventry Building Society, Virgin Money, and Accord Mortgages. Given this is such a competitive marketplace – particularly when it comes to mainstream, residential products – then I would anticipate that, by the time you read this, a significant number of other lenders will have either made their intentions known and repriced accordingly.
To say that this would be a positive for a market is obvious, but the point that we all need to acknowledge here is that, even with these initial steps, there is a fairly long road back in order to get to where mortgage pricing was before the ‘Mini Budget’.
Hope for a domino effect
As you will be fully aware, the restoration of attractively priced two-year fixed-rate deals is likely to take longer, with many lenders clearly still uncertain about appropriate pricing.
And, as I write the average five-year fix has dropped from 6.5% to 6.36% -– but pre-‘Mini Budget’ it was 4.75%, and of course, those who had significant equity, were able to secure even keener rates. Today’s pricing will clearly have a significant impact, particularly for those exiting better rates from a few years ago.
Let us hope for a domino effect in terms of lenders reacting to their competitor’s repricing downwards. We certainly saw that in the other direction when it came to raising rates so we might well see it now, to the benefit of consumers and brokers alike.
The other point to touch on is lender service levels. One of the drivers for product repricing so rapidly last month, was a service consideration: lenders needed to mitigate against exceptional new business volumes which would have resulted in poor service. Some repriced upwards to counter demand and stem volumes.
What we can perhaps hope for now, is that the market conditions over the past month or so, will have allowed lenders to get on top of their service challenges and be in a position where they can price competitively and cope with new business inflow.
Overall, it is still a market in flux of course. We are still to hear from the Bank of England MPC in terms of what it decides to do with the Bank Base Rate, with the expectation being this will be increased again. Pundits agree that it could be another sizeable hike.
Advisers remain best placed to work through solutions with existing clients and to generate new business as a result of borrowers needing reassurance, and expertise to set out what their options look like.
It’s a perfect time to make a noise with all the marketing prowess adviser firms can deliver. To be that calming professional adviser making sense of the market for consumers and steering them in the right direction at a time of great uncertainty. Advice is needed now more than ever before – they really need you right now.
Rob Clifford is Chief Executive of Stonebridge