A couple of weeks ago Atom surprised the mortgage market by launching a five-year fixed rate priced at just 1.29%, which lasted just seven days before it was pulled. Then last week Yorkshire Building Society launched the lowest ever mortgage rate, a discounted variable priced at just 0.89%.
Recent months have seen a succession of new record low mortgage deals launched, sparking talk of an all-out mortgage rate war, but some intermediaries are a little sceptical about just how much room for a rate battle there really is.
David Hollingworth, associate director at L&C, said that there is now so much competition in the market, lenders are looking to find new ways to stand out from the crowd, and trimming rates – even if only for a short period, as Atom have done – is a simple way to do that.
He said: “Rates are already low, so lenders are looking to ways to tweak their products here and there to get more leverage. We have to be very close to, if not at the bottom, of how low rates can go on an ongoing basis, subject to these sorts of ‘one-off’ offers. Swap rates have eased off a bit, which may give lenders a little more room for manoeuvre.”
Swap rates clearly played a part in the Yorkshire launch. Announcing the product, James Farrow, senior mortgage manager at Yorkshire, explained: “The cost of funding has fallen in recent weeks and as a financially strong building society with no external shareholders to satisfy we have the ability to pass this on to borrowers.”
Hollingworth noted that while Atom’s launch had set a new benchmark, other lenders had not moved to cut their own five-year deals in a significant way, which is a “crucial element in judging whether there will be further falls”.
As rates fall, will fees rise?
James Mole, head of finance and mortgages at Nova Financial, said that while a rate war has to be a good thing for borrowers, the headline-grabbing rates don’t show the full picture.
He continued: “Will lenders take the opportunity to raise other associated costs such as arrangement fees or application fees so they are compensated? I think it is important from a broker perspective that we keep an eye on the overall cost of the mortgage and treat low interest rates with some level of scepticism until true cost comparisons have been made.”
An opportunity for brokers
One thing intermediaries are united on, is that these attention-grabbing deals are a useful tool for intermediaries to re-open discussions with their existing client base.
Hollingworth said that these rates are “deals you can’t ignore” and had led to a lot of interest from borrowers.
He continued: “Borrowers have never had rates as good as these on offer, so there’s a great opportunity to save money here. There is a danger that people fall into the trap of not doing anything, as they are always waiting to see if rates will fall further, but brokers need to be proactive, keeping their clients in an informed position. Everyone, whether they are on a fixed rate or sat on the SVR, should be reviewing their circumstances at the moment with these rates.”
Rachel Lummis, mortgage adviser at xpressmortgages, said the current market means it can pay dividends to discuss remortgage options with clients at least six months before their deal comes to end.
She said: “We can choose the best, say, five-year fixed rate today and then review it in three months to see what is available. If the rate we secured for them is still the lowest then it’s a job well done. If there are even lower rates available, we can proceed with that one instead, which normally doesn’t cost the client any more. We have this exact situation with many clients and believe in a low rate environment, with a rate war, it’s the way forward to ensure that clients get the best possible deal. It’s time consuming for the broker but the end result is a happy client.”
Mole added that there is so much going on across Europe at the moment that it is impossible to predict where interest rates are heading in the next few years, but said that clients who are considering switching are told to not hesitate: “Waiting for the lowest possible rates could potentially cost people a lot of money.”
Lummis concluded: “The rate war brings opportunities for brokers, so bring it on!”