At the tail end of 2016, a number of lenders pushed their fixed rates up following swap rate movements, prompting some within the industry to predict that rates had bottomed out. In fact, some brokers forecast a “seismic shift” in pricing lay ahead.
However, swap rates have settled since the turn of the year, with a succession of lenders unveiling more competitive deals. Just this week HSBC, Barclays and Aldermore have pushed new cheap deals onto the market.
According to a poll of Mortgage Solutions readers, more than 60% of brokers believe this is the start of a pricing war. So just how low can rates go? And is that really what lenders should be focusing on?
Deep pockets and nerves of steel
Martin Stewart, director of London Money, said that rates will go as low as lender’s margins will allow, and noted that it seemed lenders were prepared to duke it out to protect their market share.
However,he cautioned that getting into a discounting war would take “deep pockets and nerves of steel”.
He continued: “Brokers, borrowers and even lenders are now so used to the benign cost of funds that a 0.1% here or there no longer floats any one’s boat.”
Competing, but not on rate
David Sheppard, managing director of Perception Finance, said that while some of the larger lenders would focus their efforts on rate, other lenders would need to look at their criteria in order to make a play for the niche sides of the market.
He added: “I would rather the smaller lenders focus on those clients who can have difficulty getting finance – contractors, those with complex incomes and people buying non-standard and new build properties – in the first instance.
“A race to the bottom is not healthy for anything other than vanilla lending.”
Stewart agreed, pointing out that there had been some progress with lenders starting to compete in terms of product innovation.
However, he concluded: “Sadly, the wheels continue to turn slowly in the mortgage world. The chant has to be: ‘what do we want? Innovation. When do we want it? Yesterday!”