Now’s the time to brace clients for uncertainty
Richard Adams is managing director of Stonebridge Group
Uncertainty about the future abounds, certainly in political and economic circles, however closer to home – for mortgage advisers at least – we appear to be able to rely on market forces continuing to deliver an increasingly strong product range for clients.
The short-term future remains difficult to foresee but at least there is some comfort for mortgage borrowers, especially those seeking to remortgage, those looking to purchase their first homes (providing they can save the requisite deposit), and even those who do only have small amounts of money to put down.
Indeed, at these times our national obsession and fixation with Bank Base Rate (BBR) somehow seems rather misplaced. There has always been a significant disconnect between mortgage product rates and BBR – given that most lenders’ source and cost of funding has nothing to do with BBR – and yet every time the MPC meeting rolls around, we tend to fall over ourselves to digest the outcome and determine just how it might impact the mortgage market.
What we should actually be doing – and advisers are particularly good at this – is managing the expectations of clients who will, no doubt, be aware of what Base Rate is and perhaps be thinking (certainly over the last decade or so) that they can secure a product rate which matches, if not betters, that.
This, of course, is traditionally a competitive time for the mortgage market in general and 2018 looks like it is going to follow the same path. Indeed, given that 2019 promises to be a rather momentous year – and I’ve not met anyone who can give me a clear idea of what is actually going to happen – I suspect that many within the mortgage market, particularly lenders, are going to want to secure as much business now but also in their pipelines for the early part of next year.
Hence, we find ourselves with some pretty attractive rates. Recent statistics from Moneyfacts show the downward pressure on rates over both the short and the long-term, even with the recent increases to BBR.
The average 5-year fix hit 4.08%, down from 4.5% a year ago and 5.38% back in September 2013; 2-year fixes have also continued to fall, down 43 basis points over the last year, and down from 5.67% in September 2013 to 3.73% now. And indeed, it won’t take me to point out, that should the borrower be able to put together 25%-plus in terms of equity/deposit, and meet the affordability criteria, then certainly when it comes to rates they are going to be able to access pricing well below that.
Moneyfacts also suggests that the much-maligned low-deposit first-time buyer might be benefiting from an upsurge in product supply – it says that 345 95% LTV deals were available in September, compared to 225 just two years ago.
However, as advisers will know only too well, the appearance of product supply is not necessarily the same as appetite to lend. Having more products available in this space is a positive but it is still a relatively small number, there is only a limited tranche of funding available to such borrowers, and considering they are perceived as higher-risk there are significant hoops to jump through, for both the lender and the borrower before they can secure the product.
However, there is definitely a healthy, competitive mortgage market to be accessed by advisers presently and, specifically in the remortgage space, one might suggest a strong marketing message can be pushed out, particularly between now and the 29 March next year. We can, from a mortgage point of view, look into our crystal balls and see some certainty and competition up until then, but I think few of us might push our predictions beyond that.
Now is definitely the time therefore to encourage clients to review their mortgage finances and, if the time is right, to secure a deal that can take them through any period of future uncertainty.