There’s no doubting the high number of mortgage rate changes we have seen throughout the last six months has impacted right across the board, certainly in terms of purchase affordability and activity, but also of course in terms of existing borrowers coming to the end of their deals and having fewer product options to choose from.
In this environment, it has been product transfers (PT) which have soared in number. Not so much because of popularity from large numbers of borrowers, but out of necessity, as affordability constraints have made remortgaging often more difficult to justify for both consumer and adviser.
It is perhaps no wonder recent data from the Bank of England showed net approvals for remortgaging – specifically for those remortgaging to a different lender – were down to 20,600 in September this year, a low not seen since January 1999, nearly two and a half decades ago.
A renewed perspective
However, even though it is less than two months ago, November feels like a different marketplace to earlier in the year. Certainly, over the course of the last couple of weeks we’ve seen a growing number of lenders passing on rate cuts to borrowers and also jumping over themselves to cut rates and win market share.
We now all see a growing number of two- and five-year fixed rates well below five per cent, let alone below Bank Base Rate (BBR), which has remained at 5.25 per cent, but which economists at Goldman Sachs are now suggesting could be cut from as early as February 2024. However, most commentators seem to align with summer 2024 being more likely.
Clearly any shift forward from forecasters quite recently suggesting we may all have to wait until early 2025 for a BBR reduction, is helpful news. While Goldman’s early 2024 prediction is not a widely-held view – indeed Monetary Policy Committee member, Megan Greene, reiterated a view many more appear to hold, that rates “might need to stay restrictive for longer”, on the exact same day – the fact these predictions are even being mooted, given the year we have endured, says something about the potential for a much brighter light at the end of the tunnel.
A positive shift
Mortgage rates falling is, of course, a huge deal, not least for an advisory profession which may have felt 2023 was one long PT-fest. Now, with a growing number of mortgage products priced below five per cent, and with competition and a need to lend likely to fuel further price falls, it may well be possible to provide existing borrowers with more remortgaging opportunities, rather than being confined to the PT option and nothing else.
Don’t get me wrong, it is positive that advisers have a growing share of PT business.
Our industry is not so far down the path from when lenders wrote the vast majority of PT activity, without adviser participation, let alone a procuration fee for so doing. If PT business totals around £250bn of lending this year, then this huge chunk of mortgage lending might be deemed ‘new money’ for advisers who, a decade ago, couldn’t access PT rates and certainly couldn’t earn a lender fee from them.
£250bn of lending that the intermediary community now participates in is a huge positive. However, it is positive that we are seeing rates continue to fall and affordability continue to ease, meaning advisers have a better chance to remortgage clients away from lenders in order to fully demonstrate the value they can add to their financial wellbeing and to offer proper consumer choice.
Plus, of course, with a remortgage client going through the full advice process, this provides the adviser with a much wider opportunity to assess other financial wants and needs, and to ensure the client is fully protected, covered, and has access to conveyancing or any other related services. With PT business that broader opportunity is clearly more limited, as advisers point out.
Overall, with a huge cohort of borrowers reaching the end of their deals in the next 12-18 months, combined with a very real need to keep mortgage cost increases to a minimum, inflation falling, BBR hopefully falling sooner than anticipated, swap rates tracking downward, and product rates also being reduced, will provide advisers with the far greater opportunity both for their business and for the benefit of their customers.
