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Borrowers picking mortgage products ‘with view to binning them later’ ‒ analysis

  • 29/06/2023
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Borrowers picking mortgage products ‘with view to binning them later’ ‒ analysis
Factors like early repayment charges are becoming more important when considering which products to recommend, mortgage brokers have said, as borrowers are more keen on working out an exit plan should interest rates drop.

Recent weeks have seen enormous upheaval in the mortgage market, with lenders pulling and repricing their products at much higher interest rates as a result of SWAP rate rises.

Brokers told Mortgage Solutions that the rate of change has impacted the way they advise, with a greater focus on ERCs as well as whether lenders can be relied on to definitely accept a case.

Growing importance of ERCs

Jane King, mortgage adviser at Ash Ridge Private Finance, noted that the current upheaval had made it more important to take early repayment charges into account “as borrowers want the option to make more than the standard 10 per cent overpayments”.

She added that with remortgages, products are being picked “with a view to binning them later if rates reduce”, so deals with free valuations and legal fees have become more important.

King continued: “Clients are also making decisions quicker – rather than taking days to think over their options they want to make decisions quickly in order to secure a rate.” 

Some borrowers are choosing to keep their options open by securing multiple offers, said Jamie Elvin, director of Strive Mortgages.

He explained: “Some clients are securing deals with both their existing lender and a new lender, so they have two options to consider until they are due to complete.”

Understanding the client

It is difficult to send a client a quote “with any confidence” at the moment, noted Richard Campo, founder of Rose Capital Partners, who said he was explaining the situation to clients and emphasising the need to supply all of the details and documents needed as soon as possible.

He continued: “We haven’t changed our advice process, or the way we operate, or even the lenders we recommend, it is all about getting the clients to understand what is happening right now so they don’t have any nasty surprises down the line.”

Dominik Lipnicki, director of Your Mortgage Decisions, said that borrowers were now alive to the need to make the right choice “both now as well as in the medium term”.

“Initial monthly payments are of course important, it is however about having a real conversation about what will happen to rates in the short to medium term and what level of risk the client is happy to take,” he added.

Working with lenders you can trust

Campo emphasised the importance currently of working with lenders who brokers can trust.

He explained: “You simply can’t risk putting in a 50/50 application at the moment, as even if it isn’t the cheapest rate when you apply, if you have to re-broke the application in two/three/four weeks, all the alternatives will be more expensive by that stage.”

As such, brokers need to explain the decision-making process to clients throughout. “If we get this wrong now, it will work out much more expensive later, so we are going with lender A as while lender B may look a bit cheaper, I can’t guarantee they will agree the case.”

Bob Singh, founder of Chess Mortgages, agreed, stating that “above all it’s the confidence in the underwriting of a deal”.

Accounting for external factors

Sebastian Riemann, director of Virtus Private Finance, argued that non-price elements, like speed and service, are of greater importance at the moment.

“It’s difficult when you do not know whether a product is still around tomorrow and there is a fine line between addressing the urgency with clients but not pressuring them into making decisions they do not necessarily have had enough time to consider,” he continued. 

“There are too many external factors that can influence the outcome such as lender systems not being able to withstand the amount of traffic or even receiving a very short notice period.”

Riemann added that the key here was managing client expectations.

Strong relationships are key

Richard Dana at Tembo Money noted that his clients have often been turned away by other brokers or lenders, so it ultimately comes down to just a couple of lenders that may work based on the criteria.

He continued: “One way that we’ve found works really well is to build strong relationships with the lender’s business development managers, particularly at the building societies and specialist lenders. Often if there is an issue or a product is withdrawn we can get them to assist to ensure we get a great customer outcome.”

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