I read Gary Adams’ analysis — ‘Product withdrawals cause “carnage”’ — with interest recently and I, along with the rest of the lender community, understand and appreciate intermediaries’ frustrations with regard to the fluid product environment.
The unstable product situation is a symptom of the volatility we are experiencing today.
We strive to give notice of product changes
We seem to be living in a continuous stream of ‘once in a lifetime’ events. From Brexit to the pandemic to the conflict in Ukraine, political and economic stability seem like a distant dream.
For buy-to-let (BTL) — and mainstream — lenders, the current situation is arguably the most difficult to manage of all recent events due to the volatility in money markets.
Until recent months, lenders and borrowers benefited from an environment of low and stable interest rates for over a decade. As the Bank of England (BoE) battles raging inflation, the money market’s expectation of where the Bank’s future base rate may be heading has seen more ups and downs than a rollercoaster, but is mostly moving in an upwards direction.
Swaps challenges
As many of you are aware, lenders use swap rates rather than the BoE base rate to help them price today’s mortgage products. Swaps are a gauge of where the market thinks rates will be at the end of the given period and they have been rising throughout the summer, accelerating in the latter half of August.
My message for landlords and brokers seeking finance is: plan ahead; ensure you are prepared with the information the lender may require; and act with pace
At the time of writing, swaps are priced at 5.49% in two years, 4.96% in five years and 4.32% in 10 years. Two-year swaps are up by 135 basis points in August alone, highlighting the scale of the issue.
The volatility in the swaps market presents challenges for lenders in two key areas: pricing and service levels. Pricing a mortgage is tough in unstable conditions. Mortgages launched in the middle of August could be loss making for the lender if still available at the end of the month, based on the rising swap rate.
Therefore, the market is seeing products launched and withdrawn fairly quickly, which can be frustrating for brokers and customers. We have also seen some lenders temporarily withdraw from the market as they reprice their mortgage range; or — as is the case with a number of non-bank lenders — because they cannot raise funding at competitive pricing.
The unstable product situation is a symptom of the volatility we are experiencing today
At Paragon, we have ensured a core range of products is available to our customers, and supplemented those with short-term offers or limited editions. We also strive to give notice of product changes, learning lessons from the pandemic when we perhaps didn’t get it right.
Service levels
The other area where the industry is experiencing challenges is service levels, as landlords rush to fix their mortgage or buy before expected increases in the BoE base rate over the winter months.
Again, some lenders have sought to ease pressure on their operations by turning off the tap of new business or slimming down their product range. The number of available BTL products has reduced by approximately 1,000 since the turn of the year. That means more business is being funnelled through to fewer lenders.
At Paragon, we have put in place plans to maintain our service levels and we are pleased they are holding up. However, we are not complacent and we know this pressure will remain for some months to come.
Pricing a mortgage is tough in unstable conditions
My message for landlords and brokers seeking finance is: make sure you plan ahead; ensure you are prepared with the information the lender may require; and act with pace if there is a specific product you may be interested in.
Demand for BTL remains strong across both purchase and, particularly this year, remortgage. Lenders are under pressure and, as a sector, we are doing our best to ensure the market operates smoothly.
Richard Rowntree is managing director of mortgages at Paragon Bank
