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Brokers urge borrowers not to pull applications after income tax U-turn – analysis

  • 03/10/2022
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Brokers urge borrowers not to pull applications after income tax U-turn – analysis
Instead, intermediaries are cautioning borrowers to keep their applications in play and review their options.

Several brokers have reported that clients have been calling today asking about their options for pulling mortgage applications submitted in the last week.

Advisers suggested that the enquiries could be due to the U-turn on scrapping the 45p rate of income tax, and the suggestion in the media that it could bring more financial stability.

Jiten Varsani, independent mortgage and protection planner at London Money Financial Services, said: “I understand their thinking. They have heard of the U-turn on the 45p tax and have either read or assumed this will be a return to ‘normality’.

“For now, I’ve advised them this could mean rates are not expected to rise but stay stable where they currently are. We should wait and see what transpires and review options on a case-by-case basis. Everything could change in 45 minutes or so.”

Jane King, mortgage consultant at AshRidge Private Finance, agreed and said: “It’s a tricky one, because if you pull your application you are going to lose the rate and if they continue to rise, then you have lost out.

“It is far better to keep the application you have and only change it if the rates reduce. You are under no obligation until your solicitor draws down funds.”


Record product fall

Over the past week, several mortgage lenders pulled their new business fixed rate deals, temporarily paused new business lending and repriced select offers.

Moneyfacts figures show that the total residential mortgage count stands at 2,262, a fall of 1,218 since last week. This includes a record fall of 935 products between 27 September and 28 September.

According to Moneyfacts figures, the average two-year fixed rate as of today was 5.75 per cent, and the average five-year fixed rate was pegged as 5.48 per cent.

This compares to Monday last week, when the average two-year fixed rate was 4.75 per cent and the average five-year fixed rate was 4.76 per cent.

In December last year, the average two-year fixed rate was 2.34 per cent and the average five-year fixed rate was 2.64 per cent.


‘Knee-jerk reaction is the last thing I’d consider’

Matthew Poole, director of Poole Family Financial, said that he could “completely empathise” with mortgage borrowers who have made mortgage applications recently due to fast-paced changes in pricing and withdrawals of products.

He continued: “It’s too early to know how lenders will respond this week as we wait for a number of lenders to relaunch their products. A knee-jerk reaction of cancelling a recent application is the last thing I would be considering or recommending at the moment.”

According to Mortgage Brain’s latest lender service report, residential lender’s time to offer varies between two to 39 days, and the initial assessment time ranges between one working day and 36 working days.

Poole added that if rates stabilised and fell, only then would he encourage borrowers to “revisit their options”.

“You are only committed to the mortgage once it completes. So, you have time to keep an eye on the market and make a further move if circumstances dictate this course of action.”


Beware credit scoring and criteria

Mike Staton, director at Staton Mortgages, said that if a client called to ask if they had to withdraw an application, he would make them aware it was not just interest rates that change but also lenders’ credit scoring and criteria.

“So, just because your decision in principle was accepted a week ago, it doesn’t guarantee you will be accepted again. After all, a footprint has been left on your credit file,” he explained.

Robert Payne, director at Langley House Mortgages, said that rates had not dropped since last week, but it was a “good idea to keep a close eye on the market at the moment, to see how it develops and if there is any opportunity to benefit from better options”.

He added: “Most products do not have any upfront fees, so you are free to switch to a new application without any monetary loss if a more attractive alternative becomes available.

“Getting an application submitted should be the priority, though, as it is unclear what will happen from here and there is still a good chance, we will see further rate rises to combat inflation.”


‘Advise on what is going on not speculation’

Anil Mistry, director and mortgage broker at RNR Mortgage Solutions, said that the advice would be dependent on transaction.

If a client was not moving lenders and doing a product transfer where the new rate would come into force in a few months’ time, then the broker could see if lower rates were available closer to the start date. Then the recommended product transfer could be cancelled before it comes into force and a new lower rate could be used.

However, for a new lending application Mistry said the above approach would need to be “considered with a pinch of salt”.

Mistry explained: “If the borrower has an offer with a high rate, but lower rates are available down the line, then as long as the new lending application does not need to complete soon, it may be possible to apply again.”

David Baird, director of mortgage finance at Aventur, said that if rates drop from last week’s position, it was in the clients’ interest to cancel and resubmit. He cited a case where the rate was 4.51 per cent, which had since been repriced to 4.07 per cent.

“The key is advising on what is actually going on not speculation,” he noted.

Staton said that having spoken with a few business development managers from different lenders, he felt that the mortgage market was yet to hit its pricing peak. He added that it would peak in December and some stability could return in 12 to 18 months’ time.

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