The challenges of the last few years have hit the household budgets of UK consumers hard, and many people have started to feel a growing squeeze on monthly finances while others have seen their borrowing needs become increasingly complex as they struggle to balance the books.
This is unlikely to change any time soon as ongoing uncertainty in the global money markets continues to impact the UK mortgage market, causing rates to fluctuate, product shelf lives to shorten and more borrowers to fall outside the parameters of mainstream lending criteria.
Consumers adopting ‘wait and see approach’
Yet feedback from brokers suggests that many consumers are still adopting a ‘wait and see’ approach to their borrowing requirements, choosing to sit back and wait for interest rates to fall and borrowing to become less expensive before addressing their mortgage needs.
However, the recent move by some lenders to increase their rates flies in the face of this approach and brokers are now faced with the additional challenge of having to advise clients on borrowing in the new higher interest rate environment while simultaneously managing their mortgage expectations.
Over the last 15 years, borrowers have become accustomed to cheap credit and low-cost mortgages and it is often overlooked how long we were operating in an environment of historically, and unusually, low interest rates.
Yet in July 2007, the Bank of England base rate was sitting at 5.75 per cent having dropped no lower than 3.5 per cent since February 2001. Following the collapse of Lehman Brothers and the onset of the global financial crisis in 2008, it fell to a low of 0.5 per cent in 2009, where it remained for around seven years before mildly fluctuating until March 2022.
Since then, interest rates have been on an upward trajectory, hitting 4.25 per cent earlier this week and it is widely expected they will remain at this level for the foreseeable future. As a result, many brokers may find they have their work cut out for them when it comes to advising clients on what they can and can’t afford in this new operating environment.
Brokers need to think ‘laterally’ about products
Managing these expectations is essential and brokers must ensure they look outside the fixed rate box when it comes to sourcing the best financing options for their clients. This means scouring the market and thinking a bit more laterally about product offerings when considering their clients’ needs.
For example, instead of opting for a preferred two-year fixed rate mortgage, a discount mortgage or five-year fix may better suit your clients’ needs, particularly as a lot of lenders are now offering five-year fixed rate products at a significantly lower rate than two-year deals.
Stress testing on five-year fixed rate products is also currently more attractive than on shorter fixed rate products, so brokers will need to ensure they take this into consideration when weighing up the borrowing and affordability requirements of their clients.
Casting a wider net and speaking to smaller, more flexible lenders that manually underwrite their mortgage products will also help brokers ensure their client secures a better deal on their mortgage term, particularly if they don’t fit the mould of strict mainstream lending criteria.
The fact is, no two clients are the same, and with a growing number of consumers starting to feel the pinch, the challenges of operating in a higher interest rate environment are starting to come to the fore.
By adopting a holistic approach when it comes to addressing the borrowing needs of each individual client, brokers will ensure they increase their chances of securing them the best deal at a price they can comfortably afford.
