I’m a fan of Martin Lewis – in fact, I often say to my team “he needs a woman standing beside him, and one day that’s going to be me,” – but that’s besides the point.
Martin is a trusted voice in the nation, and generally if he says something, people act on it. He is a valuable source of information, and he seems to be one of the first to know what’s coming – but I have to say I was disappointed with this one. I wanted to jump into the TV myself, stand next to him, and reassure people with kindness and information about what this actually means for the mortgage market.
So let’s break Martin Lewis’ response down.
A broker’s view
Martin said: “We’re seeing rates go up, but to get a mortgage you have to pass a credit check and an affordability check. Now, we are undoubtedly in the midst of a cost of living crisis, so everyone has less affordability than they did before. Rates are going up and affordability is going down, meaning more are going to fail affordability checks. That leaves us with a ticking time bomb because most people are on cheap fixes that are going to expire. Well, the rate is going to be a lot higher, and they’re likely not to be able to get them, and this is a real problem going forward. You might want to pay a booking fee to lock in a cheap mortgage. Speak to a mortgage broker for help.”
I have so much to say.
My first point is on affordability. It doesn’t work like Martin has suggested. As brokers know, all lenders operate a background stress test on their affordability calculations. We have worked with a worst case scenario in the back of our affordability checks ever since the introduction of the mortgage market review (MMR) in 2014. Therefore, the cost of living crisis isn’t affecting affordability as much as people might think.
Sure, we need to take it into account when budget planning, but at this point mortgages are not harder to get. In fact, recent changes in criteria have seen affordability increase with some lenders, which has been a welcome surprise.
Preparations already in place
As for the ticking time bomb, it is true that £374bn of fixed rate mortgages that were described by JP Morgan as “Covid cheap” are due to expire in the next six months. And rates will have increased since. But clients will not be left stranded.
The lenders will allow clients to change their rate, regardless of their current situation, and we prepared clients on this two years ago. Any good broker would have done the same. We all knew rates were exceptionally low, and this was due to unprecedented times, but we didn’t know how long that would last.
These clients would have been talked through future monthly payments if rates increased by a lot more than they actually have.
Lastly, you can’t “pay a booking fee to get a cheap mortgage”. It doesn’t work like that.
Some mortgages have booking fees, and a cheaper rate. Others have no booking fees and a higher rate. A broker’s job is to work out the most cost-effective mortgage overall taking into account all fees, within the fixed tie-in period. This is a Financial Conduct Authority (FCA) requirement and one of the most important parts of our role.
So Martin – I love you – but let me soften your words next time you broadcast this sort of mortgage information. The nation is living with enough fear. In fact I am positively fed up of the scaremongering we are bombarded with in the media.
The cost of living has gone up, rates have increased, but mortgage interest rates on the whole are still very healthy and competitive, and the property market is buoyant. Perhaps we were all getting used to a market with rates that were insanely low, but it was never going to be sustainable for long.
We can’t predict what’s coming next, but we can lessen the fear. We can focus on education and financial empowerment instead. Arm our clients with knowledge and allow them to adapt.
That’s what brokers are here for.
So, in this case, and this case only, please listen to Martin Lewis on the last point. “Speak to a mortgage broker”. We’ve got you and there are no ticking bombs about to go off here.