A host of lenders announced they were pulling products or temporarily pausing mortgage lending on Monday. This was after the value of the pound plunged to record lows as the financial markets reacted poorly to the mini Budget published by Kwasi Kwarteng, the new Chancellor of the Exchequer, on Friday.
The day also saw speculation that there could be an emergency increase to bank base rate, with the Bank of England stating only that it would not hesitate to act if appropriate. The markets now expect base rate to hit six per cent in 2023.
Brokers have reported seeing increased interest from clients in remortgaging, even if they are in the midst of a fixed deal, following the tumultuous events of the last few days, and were in agreement that advising clients in this position can be a real challenge.
Brokers need to caveat throughout the advice process
Martin Stewart, director of London Money, said his firm had seen a “spike” in clients looking to lock in a new rate even if they have a couple of years left on their existing deal.
“This is a hard part of the job for the broker, because we can’t predict what the rates will be tomorrow, let alone whether paying £10,000 to leave a mortgage today will be the right thing to do,” he added.
Stewart said that his advice to clients remains the same as it was before the latest crisis ‒ stay calm, consider your options, understand the implications and then opt for the one that you feel most comfortable with.
He continued: “But the broker does need to caveat heavily all the way through the process. If anyone is out there giving strong predictions as to what will happen they may leave themselves wide open to the ambulance chasers in a few years time.”
Do the sums add up?
Paying off ERCs in order to remortgage early rarely makes sense when you crunch the numbers, according to Rob Gill, managing director at Altura Finance.
He added: “That’s even truer as mortgage rates are rising; if a client is currently on a mortgage rate starting with a ‘1’, any new mortgage could add three per cent to that. It therefore makes sense to stay on the current rate for as long as possible rather than pay penalties to take out a much higher rate.”
Ashley Thomas, director at Magni Finance, said his client had just paid an £18,000 exit fee in order to secure a new five-year fixed rate.
He added: “They are concerned with increasing rates, with the existing loan at £900,000, even a one per cent change makes a significant difference.”
Swamped with calls
Richard Campo, founder of Rose Capital Partners, said that his phone and email had been swamped by clients, many of whom were interested in switching now even though it may involve paying an ERC.
His firm has now emailed all clients with less than a year to run on their deals, to highlight the possibility that leaving the mortgage deal early may save money over the long term.
The message to clients stated: “No-one wants to have to pay penalties, and we discussed this long and hard before sending this invite, but the way things look currently, we felt it was right to make you aware of this option so you can decide how best to proceed.”
It also pointed out that the brokerage was not seeking to be a “scaremonger”, but wanted to highlight the client’s options.
Speed is of the essence
Gill argues that it’s crucial for brokers to emphasise the need for their clients to be able to move quickly.
“Our starting point with clients these days is to be prepared. Have everything ready, ensure you’re ready to work with your broker to submit an application as quickly as possible once they’ve found you a mortgage that works for you,” he added.
