Nor is there right or wrong – ultimately choice in the market for brokers and their clients is a good thing; it keeps competition healthy and it means there’s always likely to be someone to meet the needs of a wide range of borrowers.
Is rate still king? It might seem like an obvious yes, but not necessarily. Clients – potentially squeezed by the rising cost of living – are keen to keep monthly repayments down and drive a hard bargain for their adviser to deliver the cheapest rate. That’s understandable, basic psychology makes us lean towards lower numbers where outgoings are concerned, but we know it’s important to consider the whole picture, beyond just rate, when advising clients which lender to commit to for the coming years.
Behind the scenes of funding
There’s currently a lot of liquidity in the market. Whether it’s the ring-fenced banks, access to cheap government funding, increased customer savings during the pandemic, or the wholesale funding market re-opening, many lenders are holding far more cash than normal. In the last 12 months, and with a historically low base rate, many have been able to pull a price lever to increase competition in the mortgage market, which has contributed to the record-low mortgage rates we’ve witnessed.
But there’s more to funding these rates than probably meets the eye. Lenders use diverse funding methods to provide greater stability, consistency and flexibility, usually through a combination of wholesale markets, government funding schemes and in our case, as a building society, a simple business model that uses members’ savings to enable mortgage customers to buy a home.
We balance the income we generate with paying interest to our savers that’s above the market average, but with no external shareholders to satisfy, profits can be reinvested in the business to improve our offering to brokers and their clients, our wider customers and members as well as our technology, systems and processes. We invest in our underwriting and sales team, giving brokers access to both and adopting a hands-on, common sense approach to lending.
This model is more expensive but means we can be more flexible and lend in more purposeful sectors. For example, while others had record-low mortgage rates for low loan to value (LTV) remortgages, we were able to lead with support at higher LTVs throughout the pandemic.
As lenders, though the strategies differ, it’s complementary for the market as it means together, we serve a wider range of needs.
Differentiation benefits the market
The great thing about the market is that not all lenders are the same. There’s room for many different strategies, and while we know it’s important to support brokers with competitive rates for their clients, it’s not just about price. Instead, we aim to add value in other ways, such as seeing cases on an individual basis with no tick-box exercises and computer-says-no handling. We’re told time and again that for many, that’s priceless.
So, while we all work towards the same end goal, the make-up of the products we see every day to reach that goal are far from the same.
