There has been a surge of activity in the mortgage market in recent weeks, with hundreds of deals being pulled and lenders hiking rates on many more products.
This is causing serious problems for brokers in both the residential and buy-to-let (BTL) sectors as mortgage deals disappear with little or no notice.
Market conditions can be difficult during periods of rate rises, but mortgage broker Lewis Shaw, a founder of Shaw Financial Services, describes the current situation as the worst he’s ever seen.
“Deals are being pulled by lenders faster than you can submit business,” he says.
“I had a client recently who missed three deals because they didn’t get back to me with the required documents in the timeframe I requested. That has cost them £4,000 over the next five years because of these rate increases.”
Having to put people under pressure to make up their mind is never a comfortable position
It is not hard to see why rates are marching upwards. The cost of mortgages started to increase last autumn in anticipation of the Bank of England (BoE) raising interest rates before the end of the year. But, in recent weeks, wider economic and political issues have accelerated this trend.
Rocketing oil and gas prices, in part driven by the terrible situation in Ukraine, have led to concerns that inflation in the UK could exceed current forecasts, prompting the BoE to raise rates faster and further than expected. Three consecutive rate rises have certainly indicated the direction of travel.
This has affected pricing across the mortgage market.
SPF Private Clients chief executive Mark Harris explains: “There has been an upwards trend across the board. Base-rate tracker and discounted variable-rate mortgages have risen mostly in line with the movement in the base rate.
To add real value to client relationships, advisers need to be able to assist their client to navigate these tricky conditions
“The premium over base, or, with the odd exception, the discount from the lender’s standard variable rate has not changed much.
“For example, in October 2021 Barclays offered trackers equivalent to 75 basis points over base rate, which is the same today.”
Fixed-rate drama
However, Harris says there have been far more dramatic movements in the fixed-rate market, particularly on the lower loan-to-value products.
He says: “This is perhaps not surprising given how cheap fixed-rate mortgages were and how tight lenders’ margins have been on these products, particularly at lower LTVs.”
Brokers can help borrowers by encouraging them to plan ahead and secure rates several months before their existing deal ends
Data from the mortgage industry shows it is shorter-term fixes that are currently ticking up at the fastest rate — with some deals going up by as much as 0.7 percentage points in the space of a week.
Brokers can help borrowers by encouraging them to plan ahead and secure rates several months before their existing deal ends
Six months ago, Harris says, the best-buy two-year fix (at 60% LTV) was from TSB, charging 0.84%. By mid-January the best deal at this LTV was 1.11% and by mid-March it was 1.75% — from Coventry Building Society.
This rate was offered ahead of March’s base-rate rise and few brokers expect it to still be available by the time this article appears in print, given the speed at which deals are disappearing.
Over-riding all of these issues is that sense there is not enough property
There have been similar increases at higher LTVs, although the difference is not as pronounced. For example, Harris says six months ago the cheapest two-year fix at 90% LTV was from HSBC, at 1.74%. In mid-March brokers could still secure 1.99% rates from the Clydesdale at this LTV.
The picture is mirrored across the five-year fixed-rate market, with the biggest jumps again being at the lower-LTV bands.
Those looking for BTL deals face the same problems, with data from Moneyfacts showing the average BTL two-year fix (at 75% LTV) has shifted from 2.86% to 3% in just a month.
This is like the worst days of Covid. Lenders are falling behind due to sheer volume
The Moneyfacts data reveals lenders aren’t just repricing products — they’re pulling them completely. At the start of March there were 1,478 residential two-year fixed-rate products (across all LTVs) on the market. This is down from 1,611 products at the start of February and is the first serious reduction in the number of available mortgage products since the significant Covid-related contractions in March 2020.
London & Country Mortgages associate director of communications David Hollingworth says: “We have seen a phenomenal amount of products being withdrawn and replaced at a higher rate.”
The speed at which this is happening is creating challenges for brokers, observes Coreco managing director Andrew Montlake.
Every email that lands in my inbox seems to be about a rate changing or products being withdrawn
“A few months ago, we were looking at five-year fixes at under 1%. Today they are nearing 2%.”
The most immediate problem, he adds, is keeping track of rate movements and managing client expectations.
“Lenders can change the pricing of deals very quickly and often without notice. This can create problems if we have given a client a quote one day but then have to go back and let them know it is no longer available.
“It can be very difficult to manage expectations in these circumstances.”
Swift action
Often the turnaround can be even quicker. Some brokers report products that were available in the morning disappearing that afternoon. It is clear that clients must act quickly to get rates while they last, but this can put brokers in an uncomfortable position when discussing options with them.
Carl Summers Financial Services adviser Scott Taylor-Barr says: “I always feel like some dodgy salesman when I tell a client, ‘You can’t sleep on it. This deal might be gone tomorrow.’
Base-rate tracker and discounted variable-rate mortgages have risen mostly in line with the movement in the base rate
“Taking on a mortgage is a big decision so having to put people under pressure to make up their mind is never a comfortable position.”
Adding to brokers’ workload is the need to ensure all client documentation is correct and presented in a timely fashion.
Previously, failure to do so could lead to delays in the process. Now, any glitch during the application stage could see the mortgage disappear.
Longer notice
Brokers would like lenders to do more to alleviate some of these issues. Montlake says one option may be more notice prior to rates being pulled.
“I appreciate lenders find themselves in a difficult situation and rate rises are inevitable,” he says. “There is the risk that notice of rates being withdrawn can lead to a spike in business activity.
“But some lenders, such as Coventry BS, give 24 hours’ notice of rates being withdrawn. This at least gives brokers the opportunity to notify clients. If a lender like Coventry can do this without incurring these problems, surely others can too.”
We have seen a phenomenal amount of products being withdrawn and replaced at a higher rate
Missing Element Mortgage Services mortgage specialist Paul Neal is also critical of lenders.
“Every email that lands in my inbox seems to be about a rate changing or products being withdrawn. It’s easy to blame the awful conflict in Ukraine or the rising costs of fuel but there is no rhyme or reason to it. We can start an application at 4pm and by 6pm the product is no longer available.
“This is like the worst days of Covid. Lenders are falling behind due to sheer volume and are removing products as and when they feel they need to in order to play catchup.”
Jamie Thompson Mortgages founder Jamie Thompson says the industry needs to agree a minimum notice time for withdrawing products.
“Rate are returning to levels we’d come to expect and have been quite used to in the past, so it’s hardly the end of the world. But the way some lenders have withdrawn products with just hours’ notice is unfair on customers.”
There is the risk that notice of rates being withdrawn can lead to a spike in business activity
Hollingworth, however, has sympathy with lenders that are reacting to a rapidly evolving situation.
“They want to remain competitive and do not want to turn off the flow of lending completely by pricing too highly.
But with other lenders pulling products at short notice, this can mean they find themselves back at the top of the pile with lending volumes consequently rising.”
This can lead to funding requirements being rapidly met, or lenders struggling to protect service levels with increased demand. As a result, they often decide to pull products, which is creating a “domino effect” across the industry, he says.
Buoyant market
Spring is traditionally the busiest time of year in the housing market. But this year it follows an exceptionally buoyant winter period — which has seen house prices continue to surge amid strong demand from buyers and a continued shortage of supply.
Brokers were already dealing with exceptionally high workloads, so these latest rate rises and product withdrawals are only adding to a difficult situation. The rises are also likely to drive more activity, in the short term at least, from borrowers looking to remortgage.
Harris says: “Remortgage activity is starting to pick up and is set to continue to do so as borrowers look to secure rates before that are further increases.”
A few months ago, we were looking at five-year fixes at under 1%. Today they are nearing 2%
The question for many borrowers in this situation is how long to fix rates for — particularly as the recent wave of rate rises has meant there is now far less differential between the pricing on two-year and five-year fixes.
Montlake says: “We’ve seen some clients opting for shorter-term products in the hope that underlying conditions may have improved at the end of the term. This is a bit of a risk, but it is a view that some are taking.”
What next?
Looking ahead, the question is whether these rate rises will create a longer-term break in activity in the housing market.
It can be very difficult to manage expectations in these circumstances
Most brokers do not think there will be an immediate effect, although many expect a slowdown later in the year.
Harris says: “The purchase market is still active although the froth has gone.”
However, he points out the scarcity of property means quality stock tends to sell quickly, often at over the asking price.
Montlake thinks higher interest rates alone are unlikely to cause a significant slowdown. He observes that, even with the recent rises, mortgage rates remain historically low.
Deals are being pulled by lenders faster than you can submit business
But the wider cost-of-living squeeze, combined with higher house prices, may start to dampen demand, particularly in the first-time buyer market.
However, Harris points out that changes to affordability calculations may offset this to some extent and help first-time buyers in what could be an increasing-ly difficult market.
Defying gravity
Higher borrowing costs and spiralling living costs would, in ordinary circumstances, suggest a significant slowdown in the housing market. But brokers observe that the market seems to have been defying gravity for several years.
Montlake says: “Over-riding all of these issues is that sense there is not enough property, and what seems like an insatiable demand from buyers.”
With interest rates rising again in March, this situation does not look like easing soon. Some advisers, like Shaw, expect it to get worse, creating additional workload for brokers.
Rates are still relatively low and good deals are still there to be had
However, despite these problems many brokers remain optimistic, believing it is in these testing times that they can prove their value to clients.
Simple Fast Mortgage principal Rob Peters says: “To add real value to client relationships, advisers need to be able to assist their client to navigate these tricky conditions.
“One of the strategies we are currently employing, to manage some clients’ interest rate risk, is to lock in a potential new deal as early as possible by taking advantage of those lenders that can effectively lock in an interest rate nine months in advance.”
Peters says some lenders offer a decision in principle that secures a rate for up to three months, which can then be converted to a mortgage offer, valid for a further six months.
Mojo Mortgages mortgage expert Zarah Gulfraz says: “It is important to remember rates are still relatively low and good deals are still there to be had. Interestingly, it could even focus borrowers’ attention away from headline rates and towards the true cost of their mortgage over the initial term.
A client recently missed three deals because they didn’t get back to me with the required documents in the timeframe I requested
“We find people are quite grateful when we point out that some enticingly low headline rate they’ve seen elsewhere is more than offset by expensive fees, for instance.”
Harris says communication with clients remains vital.
“Brokers can help borrowers by encouraging them to plan ahead and secure rates several months before their existing deal ends,” he says.
“This will minimise disappointment and may enable clients to secure cheaper rates than they would have done if they had waited until the end of their current mortgage.”
