With last week’s base rate rise to 1.75%, industry experts suggest that as it stands mortgage rate rises are not having a wider impact on weekly and monthly income and expenditure as some other factors such as increasing fuel costs, food supplies and utility bills.
Speaking on this week’s Lenders Live on LinkedIn hosted by Knowledge Bank chief executive Nicola Firth, Foundation Home Loans commercial development Mark Whitear says the impact of interest rate rises on the mortgage world “will be staggered over a period of time”.
Last Thursday, the Bank of England (BoE) predicted that interest rates will hit 13% before year-end. It hopes to reduce inflation to 2% in two years – it stood at 9.4% in June.
Agreeing with Whitear, Together sales director Sundeep Patel says: “Last time when we had such a massive rise in interest rates, a lot of people were on variable discounted rates, looking at the data this time and that’s not the case – the impact will be more staggered.”
From a specialist lender’s perspective, Patel explains: “We continue to monitor and operate in the market, but we do have to take a very prudent view on what’s going on, not just from a rate perspective but also from a loan-to-value (LTV) perspective.”
“We are dealing with assets that are slightly more risky at times and we have to be a little bit more prudent in how we apply our lending vision,” he adds.
However, Patel notes that in general, the market is “still buoyant”.
Speaking from a broker’s view, The Mortgage Mum founder and director Sarah Tucker says: “Mortgage payments are going up, especially for remortgages. It is crazy for some of them how much more they’re paying.”
“Rates are historically low, they’re not normal. If you are securing right now, be prepared for rates to increase at the end of your two or potentially five-year window.”
Mortgage affordability test
At the start of this month, the BoE withdrew its mortgage test, which meant from 1 August lenders were no longer obliged to stress test borrowers.
In June, the central bank announced that from August it would drop the requirement for lenders to apply a stress interest rate of up to 3% when assessing prospective borrowers’ mortgage affordability.
MPowered Mortgages distribution director Emma Hollingworth explains: “Loan-to-income (LTI) caps will counterbalance any increased borrowing that might be able to come from it.”
“Lenders have got a huge responsibility to lend responsibly and therefore, we have got to make sure that it is affordable regardless of whether or not the stress rate goes. As we go through the rest of this year, I don’t know if there are any lenders that have taken that cap away. You have got to that the 1% in there as standard.”
“There’s a lot more to take into account when it comes to affordability than just the stress rate and whether our customers can afford it and should afford it,” Hollingworth adds.
Also discussing this topic, Tucker explains: “We have seen some lenders increase their calculators, although marginally it still shows an increase from removing the stress test. Sometimes that marginal increase is all the client needs.”
“In the face of rates going up it’s not just a case of even the lenders all jumping on board and starting to lend more money, the client has got to be able to afford that higher interest rate and realistically afford their bills.”
FCA rules on appointed representatives
The Financial Conduct Authority (FCA) issued new rules last week to make authorised financial firms more responsible for their appointed representatives (AR).
New rules “will help prevent consumers being mis-sold or misled by appointed representatives and will prevent misconduct by appointed representatives undermining markets operating fairly and safely”.
Speaking on the changes, The Mortgage Mum’s Tucker says: “We are AR so we’re under a network and I would be a bit discomforted if my network and a principal firm didn’t need to know all that information on me as a business.”
“However, I do know there are lots of directly authorised (DA) firms out there that have AR firms operating underneath them with very little control or awareness of what’s happening.”
“It’s good that they are going to have to sit up straighter and be a bit safer because the safety of the mortgage market is so important. We have worked too hard too to be let go of, so I don’t think it’s a bad thing.”
Also weighing in, Hollingworth adds: “We have been in network distribution for around three years now. It was always deemed in the past from a lender point of view that the quality of business that came from a network broker or advisor was somehow better quality than it may have been coming from a DA firm.”
“It’s essential that the professional standards that the FCA set, networks set and large DA firms set are infiltrated downwards and sideways to make sure that the market is the professional market it has become today.”
“As a lender, we will monitor the quality of applications from networks and DA in the same way because there’s a customer at the end of every mortgage transaction that is complete. Anything that is brought into the market which ensures that quality, professionalism and standard to all that are involved, is a really good thing.”
Hollingworth suggests that ARs only have to worry “if they’re not doing things properly”.
Temporary closure of new business applications
Last week, various lenders including Saffron Building Society, Coventry for Intermediaries and Cambridge Building Society temporary closed new business applications while they got on top of current volumes.
Commenting on this, Whitear says “I won’t knock them for doing it”.
“When I was a broker back in the early 2000s and used to frustrate the life out of me when lenders’ service levels got out of hand and it meant it has a knock-on effect with the amount of time you spend on the phone trying to get through to them and everything else.”
“Having that ability, to be honest, and acknowledge that a break is needed to service the business they have already got is quite a brave thing to say. I think it’s the right thing to do in those circumstances.”
Also speaking on this, Patel says “you can’t knock them for the decisions they make”.
“You have to put the consumer in the middle of everything. If service levels are out of control and not manageable, you have got to make calls and sometimes they are tough calls to make. In the long-term, it’s the right decision to make so I’m not knocking anyone’s decision on that.”
FCA urges industry to encourage mortgage switching
The regulator explains that, based on H2 2021 data, 74% of active mortgages – 6.3 million – are on fixed rate and, of those remaining – 2.2 million – half are on discount or tracker rates and half on reversion rates.
It adds that the number of borrowers who have switched when doing so would save them money has improved “significantly,” dropping from 800,000 in 2016 to 370,000 at the latest count.
Commenting on this, Tucker says: “We need to be letting people know that their rates are coming up for renewal six to seven months before. We’re seeing more lenders allowing us to move the rate a month before it ends, which has been really good because it means we can add another month to let them know and get in contact seven months before instead of six.”
“It’s really important that we continue to do that for our clients and let them know when their rates are coming up and to talk about the benefits of really looking at the market.”
“A lot of people can’t be bothered to go through the whole process of a remortgage if they can just switch their rate but it’s about showing them how can be saved if they do really look at the whole mortgage product and their whole financial situation.”
“We have got a really good opportunity to present this differently to our clients and actually show them that we’re calling it a bit of a mortgage MOT when people’s remortgage runs out because it gives them a chance to look at the whole financial picture in their household.”
