The rate war will continue

Rob Clifford

September 2, 2015

Rob Clifford is group commercial director at Shepherd Direct which is a shareholder at CENTURY 21 UK, Moneyquest and Stonebridge.

Despite the obvious fact that business transactions do still take place throughout the traditional summer holiday period, there can be no doubting that the market as a whole enters a new phase when the kids go back to school. As we all know, millions of folk take holidays during the school break which means that every single business working in the mortgage market tends to have its greatest resource challenges and customer acquisition dips during those six to eight weeks.

Once September hits though you can almost feel the sea change in the market; with only four months left in the calendar year – and December being a shorter and notoriously quiet month – business ambitions for 2015 will either be achieved or fallen short of during the next quarter. This is even more important given the year the market has had – a slow start was followed by a period of general election-based uncertainty before picking up throughout June and July. The anticipation has to be that this growth in activity will continue and, certainly from a lender perspective, I fully expect there to be a competitive rush for business from now on.

September is likely to see the first shots fired in what will be a continuation and perhaps intensifying of the pricing wars; I’ve noticed recently that there has been much consumer media focus on rates increasing, especially in light of comments made by various MPC members about when BBR might be increased. The wider assumption appears to be that now is the time to grab rates before these competitive products are taken off the shelves or repriced upwards

However, my view is that over the next few weeks we will see some noticeable movement in pricing which will be down not up. The reason, as Ray Boulger amongst others recently pointed out, is that gilt yields and swap rates are pretty stable at present and most lenders are some way down on their lending targets for this year. After 2014 produced strong lending volumes for most, the targets for 2015 would have been even greater, however the H1 numbers from lenders such as RBS, Santander, Lloyds et al, show a considerable drop on last year’s lending.

This means they need to make this shortfall up in the second half of the year and the easiest way to do this is likely to be with margin compression and rate reductions. This could be particularly evident in the fixed-rate market because undoubtedly borrowers – anticipating a BBR rise perhaps early next year – might be more inclined to opt for fixes now in order to get ahead of the curve. That said, given the interest rate mood music suggesting that the ‘new normal’ when it comes to rates is likely to be a prolonged move up to the 2.5%/3% mark, there may be large numbers of borrowers who can comfortably take interest rate rise ‘hits’ over that period, and still secure better overall value than hopping into a fixed deal.

The good news for advisers is that the next few months are likely to see some seductive rates to offer to clients in a highly competitive lending market. Perhaps this will be most visible in the residential mortgage sector – particularly amongst the ‘big boys’ – but we should also see more niche offerings coming to market. I’m thinking especially about lending to older borrowers and those in (or reaching) retirement who can use pension income. There is also the matter of buy-to-let which, despite government intervention, to my mind will retain strong demand for the foreseeable future. And you can probably add bridging finance to that list as more and more players focus on taking a slice of this growing market share.

All in all, the rest of the year promises to be an exciting period and a potentially lucrative one for brokers in terms of activity, but also for clients who could be about to see some very attractive rates to choose from.


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