When asked on a Mortgage Solutions masterclass where rates might settle last year, Jodi Spreadbury, senior mortgage and protection adviser and head of lender relations at The Mortgage Broker, said it would be good for pricing to go down to early four per cent, but added: “It’s the rate consistency that everybody wants and needs.”
She added: “When rates were six and a half per cent everyone was tearing their hair out, but we all know there were periods in time where four and five per cent interest rates were just normal. These one and two per cent rates, nobody thinks they’re coming back any time soon and they were the anomaly.
“Regardless of what the rates are, as long as there’s rate consistency without this up down, up down, that’s when we’re going to have some more stability and more confidence in the market.”
Greg Cunnington, chief operating officer at LDN Finance and LDN Private Clients, agreed that super low rates would not return but said high three and low four per cent pricing would be ideal.
He also said the market had been “noticeably busier” in the last month and although lenders were being “pessimistic on lending for next year”, a continuation of stable, lower rates could see the market get more active than anticipated.
Cunnington said if mortgage lending does reduce, lenders would become more competitive with pricing could also drive activity.
Karl Wilkinson, founder and CEO of Access Financial Services, also said mortgage rate consistency was key, adding: “That’s the only way the mortgage market will continue at a decent level. Customers need to readjust, they need to re-evaluate their affordability, and they can only do that once they know what a mortgage rate is going to be.”
He said it was hard to predict where rates would go but added that it “looks like things are levelling off” and confidence seemed to be returning.
Addictive low rate environment
Spreadbury said affordability had been tough for borrowers this year because there was a difference between what people could pay and what they wanted to pay for their mortgage, particularly considering the rising costs of other living expenses.
She said the Mortgage Market Review measures worked at safeguarding borrowers, so people who took “huge mortgages when rates were one or two per cent, with rates being five per cent it’s still affordable but a lot of people have the mindset of ‘I just don’t want to pay that extra payment’.”
Wilkinson said he felt more sorry for homeowners than first-time buyers facing higher rates because when it came to a remortgage, “utilities going up, food going up… they’ve now got to find that extra few hundred pounds a month to be able to remortgage… how are they going to pay for the next two to five years?”
Cunnington added: “The low interest rate environment was almost a drug everybody got addicted to, and now they’re having to take medicine it’s not pleasant.”
He said his firm saw clients on solid incomes still expecting to have a nice car, go on holidays and send their children to private school and alongside the rising cost of living affordability was “restricting borrowing for that reason”.
He said this was common with people earning higher incomes as they expected to be able to borrow five times their income but could only obtain three times their income.
Cunnington said affordability was having a larger impact on larger loans than interest rates were.
Borrower behaviour impacting business levels
Wilkinson said it would be interesting to see what the impact of lower five-year fixed rates would have on broker business in two to four years as they would “not have access to clients as early as what we potentially could have had [if] two-year fixed rates had been relatively lower”.
“We’ve seen some of the impact this year, absolutely, but I think we’re going to see more of an impact over the coming 12 months, two years, three years’ time when we as brokers are going to be looking to find out what can we do with our remortgage customers,” he added.
Cunnington said the popularity of product transfers affected broker proc fees but in the last month, lenders had been pricing new business rates “as competitively if not better than product transfer rates”, which was encouraging a shift towards remortgages.
He said this was good as remortgages had more flexible terms, but noted lenders had made product transfers more changeable by allowing borrowers to switch rates after one had been selected. However, he said it was still difficult as it was typically only possible to do this once.
The 46:56 session covered mortgage pricing, buy-to-let market, later life lending and Consumer Duty. The session is hosted by Anna Sagar, reporter at Mortgage Solutions, and Shekina Tuahene, commercial editor at Mortgage Solutions. The expert panel included Greg Cunnington, chief operating officer at LDN Finance and LDN Private Clients, Jodi Spreadbury, senior mortgage and protection adviser and head of lender relations at The Mortgage Broker and Karl Wilkinson, founder and CEO of Access Financial Services.
