Unlike what seems like the majority of the summer so far, the mortgage market has certainly turned up the heat in recent months with products at their most competitive levels for many years.
Much of this is due to a period of relative stability with speculation easing over any immediate interest rate rise after a period of sustained conjecture and supposition.
This is not to say that this might not return.
We all know the potential of economic change at any given moment through a catalogue of influencing factors, but we do appear to be sitting in a moment of base rate serenity.
As such, we have seen a rash of rate reductions from a host of lenders in an attempt to stimulate the market with the words ‘lowest’, ‘cheapest’ and ‘slashing’ being bandied about with greater frequency than we have seen for a long time.
In addition, we have seen a depth of product analysis which outlines the introduction of increased activity within the marketplace.
For example, data from independent financial research company Defaqto suggests that 8,968 mortgages were either brought to market or updated by providers between 1 April and the end of June this year. At the same time, almost 600 mortgage products were removed from the market.
In terms of specific mortgage products, the Defaqto data shows that:
- 186 fixed rate mortgages were introduced, 4,815 changes were made to existing fixed rate deals and 309 fixed rate products were removed from the market by lenders
- 80 standard tracker rate mortgages were launched, 1,687 changes to existing products were made and 108 of these mortgages were pulled by providers
- 99 buy-to-let mortgages were brought to market, with lenders making a total of 715 changes to existing deals, while removing 66 from the market
There has been other research published showing recent uplifts in product numbers across the board, but the question is what does this really mean to you as the intermediary?
Firstly, it’s important to gauge how and where the market has progressed or regressed so we can highlight the areas in which intermediaries can see the difference and relate this to their clients.
With this in mind we undertook some year-on-year analysis, comparing 16 July 2010 with 15 July 2011 to assess how some elements in the market may have changed.
Swap rates
- Year on year, two-year swap rates have decreased by three basis points, but the average rate on a two-year fixed rate has dropped by 36 basis points
- Year on year, three-year swap rates have decreased by eight basis points, but the average rate on a three-year fixed rate has dropped by 33 basis points
- Year on year, five-year swap rates have decreased by seven basis points, while the average rate on a five-year fixed rate has dropped by 55 basis points
- Average tracker rates have decreased by 87 basis points on a lifetime tracker and 25 basis points on a limited term tracker over the year
- Offset tracker rates have decreased by 45 basis points
Product availability
Total products in the market are actually down by 4.3% year-on-year, which may be surprising when I’ve just highlighted how competitive the market is.
Yet, this masks the underlying story of more availability at higher LTVs. In particular, there has been a marked 22.3% uplift in volumes at 80% LTV.
We have also seen some interesting product trends:
- Medium term fixes (four to five years) saw a 15.7% rise year-on-year, reflecting customer appetite to fix over the medium term to insulate against base rate increases
- Offsets also saw a healthy increase of 15.2%, reflecting the strength of this proposition in a low base rate environment and customers’ desire to keep cash readily accessible whilst making it work harder for them than in a savings account. This also possibly reflective of the fact that offset benefits will increase as base rate rises
- Two-year fixes were up by 1%, otherwise long-term fixes, three-year fixes and trackers all saw decreases in availability. The starkest statistic here was a 72.7% decrease in the long-term fixed market. However, it must be highlighted that this represents only a small proportion of the market – 33 products in 2010 and nine products in 2011
Fees
In terms of product fees, we found that:
- Fee-free products have increased by 7.7% and now represent 13.6% of the market compared with 12.1% a year ago
- Products with a fee under £500 increased by 4.6% and now represent 26.7% of the market compared with 24.4% a year ago
- Products with a fee above £1,000 increased by 35.9% and now represent 23.6% of the market compared with 16.6% a year ago
- The “typical” fee of £500-£1000 has decreased from 46.9% to 36.1% of the market
So, how can we interpret these results and translate them into actual business?
Taking the obvious improvements, we can see that there are more fee-free mortgages available; the availability of 80% LTV products has grown by almost a quarter; and demand for offset continues to increase.
With swap rates trending year-on-year in a downwards direction and lenders generally passing these trends onto borrowers, now is surely the time to revisit those customers, who we all know, should be moving to a better deal.
Inevitably, for all intermediary firms the best place to generate business is from an existing client base. It is common sense for many to revisit this on a regular basis but how about doing it with specific statistical data in mind as a potential marketing tool.
Let your clients know that there are more 80% LTV deals available than this time last year.
Tell them what good rates are currently available. Outline the benefits attached to offset mortgages in the most simplistic terms.
Give examples of how much someone with a decent level of savings could benefit. Let them know that the number of fee free mortgage deals has risen.
Communication remains vital to letting existing and potential clients know what might be available.
Many will not realise that there are such highly competitive products out there.
They may have seen the odd negative headline and wrongly assumed that they aren’t in a position to remortgage, purchase or arrange buy-to-let finance.
Of course, there are certain areas of the market that may not have improved as much as we might have hoped, which is why it is important to highlight the positives and target a specific demographic that these positives might be appropriate for.
Statistics come in all shapes and sizes and some are certainly more relevant than others, but many are useful if they can be verified and used to target the right kind of client.
With all this information at our finger tips, the first step should be to inform clients about the performance of the market and the deals available to satisfy their individual requirements.
If you don’t then someone else just might.
David Finlay is intermediary managing director for Barclays
