Existing mortgage borrowers coming to the end of a deal are waiting until the last minute to switch to see if a better deal becomes available, according to Buckinghamshire Building Society head of mortgage sales Claire Askham.
Speaking on Knowledge Bank’s Lenders Live, Askham says with the base rate potentially being lowered in August customers could “hang around a little bit longer to see what may be available subject to the base rate changing and whether they’ll see lenders reduce their rates following that as well”.
Last Thursday, the Bank of England held the base rate at 5.25% for the seventh time in a row.
Mortgage market participants have long said that a fall in the rate of inflation close to the Bank of England target rate of 2% would give the BoE confidence to cut the base rate.
While the recent fall in inflation under normal circumstances might have triggered a rate cut – the Monetary Policy Committee (as widely predicted) decided that with a general election in a matter of weeks, a rate change should wait.
Askham explains that customers will go one of two ways: “If they’re struggling and they feel that they can’t afford to wait and they’ve got to make a switch now due to payments being the level that they are.
“However, other customers who are not in that position will wait and see what happens as to whether they feel they’re going to be able to secure a much better rate.”
She says that there’s so much to account for in the next couple of months.
“We’ve got the election, the MPC decision on the base rate in August and how lenders will then view that. How will that then impact customers moving forward with affordability being such a challenge.”
“Part of me wonders whether customers will hang on a little bit now, or whether we’ll see a little bit of a slowdown just until we start seeing these challenges moving forward.”
Alfa Mortgages mortgage broker Adam Smith describes the current climate as “lastminute.com” for residential clients.
Smith says over the last three months he has noticed that “people that are customers of Santander, Nationwide, etc, are waiting until the last possible minute to switch that rate”.
However, Smith highlights that although the focus is on the BoE base rate, the fixed rates are more closely linked to the swap market.
He points out: “Maybe it will affect those clients that are on trackers. Those people who are so tight on affordability will be looking at even a 20 basis point deduction. On the flip side, some people don’t even care.
“These people tend to be investors. Whatever the situation the market is in, investors are happy to go ahead and fix in at whatever rate because their long-term strategy is capital growth.”
Meanwhile, Darlington Building Society head of intermediary distribution Chris Blewitt says: “When it comes to maturities, we’re seeing it as late as it possibly can be without the client going on a standard variable rate.”
“This is quite interesting because we’re part of the Mortgage Charter, so we write out to customers three months early and they can sign up at that point to lock in at a certain rate and can change to a lower one with the same lender if it comes up.”
“However, not one seems to be taking this option with customers preferring to sit and wait. Also, customers could also be scouring the remortgage market as well as the product transfer market.”
Blewitt believes there is no right time or wrong time to buy a house.
He comments: “You tend to purchase a house with a heart, not the head. Therefore, I view it slightly differently in the sense of, this is my budget, this is where I want to be for the schools, the property type, you know, the spare bedroom, where we can have our child or second child, etc. and that transaction seems to be done more from emotion.”
“The reason people are probably leaving it as long as possible is because they have sat and managed that direct debit for two, three, five years and now want to do something positive with it, or less negative.”
Discussing fixed rates, he says: “The swap rates are baking what the market expects in terms of rate drops. Of course a drop in fixed rates will have a positive impact, as it shows the direction of travel, but I wouldn’t expect a drop if the BoE base rate drops 0.25% or 0.5%. This has already been baked into the fixed rate thinking, so there will not be much swing on this.”
“However, if a lender decides to drop its SVR accordingly and therefore drops its stressed rate, customers might find affordability gets a little bit better because there’s slightly less stress on there. This means customers might be able to borrow a little bit more.”
