Hopefully you have all enjoyed a nice summer, sipping pina coladas and not getting caught in the rain, maybe in the sweltering heat of far-off shores, with those of you who have kids both enjoying their company and simultaneously hoping they go back to school soon.
For others, waiting for the usual holiday madness to subside so you can get a quieter, cheaper and probably more temperate holiday, I hope you have a great time.
Brokers are now asking lenders for reciprocal support
This month I thought I would start with swap rates; no messing. After all, it’s the question I get asked most now. Well, while three-month Sonia has risen to 4.8%, the better news is that swap rates are still sporting speedos and bikinis, chilling nicely down and not showing the recent mad monthly swings.
Since the previous column:
2-year money is down 0.52% at 5.46%
3-year money is down 0.53% at 5.18%
5-year money is down 0.38% at 4.78%
10-year money is down 0.10% at 4.31%
Whether we have finally got to the stage of there being some calm in the markets, time will tell. But inflation seems to be moving at last and, with recent reports of food prices falling to their lowest level in a year, on top of the energy price cap reduction, there is every expectation that falls will continue.
If mortgage rates continue to ease, more people could return to the market in what will be perceived as a buyers’ rather than a sellers’ market
Obviously, the key is core inflation and, while another Bank of England (BoE) rise is likely on the back of the last wage growth figures, there are signs this is easing. The Purchasing Managers’ Index reading came in at 47.9 this month, with below 50 marking an economic contraction. The Bank has already warned we could see almost half of businesses have difficulty in paying loans and debts, which is an increase from 45% last year. This will halt wage growth as pay rises and new staff will be frozen.
We have even seen former BoE governor Mervyn King (I liked him) weigh in, saying interest rate rises should be halted as fears over a recession loom again. As I have said a thousand times, more rate rises are not needed as previous moves are taking effect.
It would be interesting to know what the actual cost to lenders would be to increase retention proc fees
It is a weird time when bad news for the economy is sort of good news for inflation and interest rates, and striking a balance of bringing down inflation without crashing into a recession is a tough job.
Despite the usual doom-mongers, intent on insisting that house prices are about to fall 30% (Twitter, or rather X, can be very hard work), we saw Deutsche Bank recently forecast a correction (not a crash) of 7% in house prices this year.
Supply is thin on the ground still and, if mortgage rates continue to ease, more people could return to the market in what will be perceived as a buyers’ rather than a sellers’ market. I remain cautiously optimistic.
There is a risk now that some of the PT work is loss leading, and good brokers may go out of business
Speaking of optimistic, ironically GfK’s Consumer Confidence Barometer, which provides monthly tracking of UK consumers’ views of their finances and the economy now and for the next 12 months, showed UK consumer confidence had improved by five points in August versus July. It is still negative, but this is a decent improvement and substantially up on this time last year.
As many of us clear the tumbleweed that decorated offices in August, we can only hope activity increases again when people return from holidays, and lenders continue to remember they need to lend, with healthy competition for market share and getting a good start to next year of some importance. There are promising signs, and perhaps part of the recent slowness is due to the first proper summer holiday season since pre-Covid!
We also need our politicians to keep calm, do nothing stupid and put in no pre-election panic policies. Nadine Dorries aside, we have not seen any sudden moves from either side, with Labour making it plain it will not do anything rash, which is sensible. I am waiting for the fearful ‘Hold my beer’ moment, though!
One of the big conversations currently has been around procuration fees on product transfers (PTs), about which there has been some healthy debate, but some deliberately provoking (that’s social media for you again). It goes without saying I believe these fees should be no different from other business transacted.
We have even seen former BoE governor Mervyn King (I liked him) weigh in, saying interest rate rises should be halted
The process of advice and recommendation is the same, and now, with the PT window doubling to six months, we often have to revisit a file several times to ensure the rate is still the best and the client’s circumstances or risk attitude have not changed, especially under the Mortgage Charter. There are several examples of more than five changes to one file as rates change; all of this handled by the broker rather than conversations direct between the lender and client.
Proper compliance still needs to be done, documents should be checked, and the advice conversation is now longer due to market volatility and client uncertainty over what is the right product to take in an increasingly litigious environment.
We have recently had many lender requests for the broker market to support them, with payment holidays, service pressures, etcetera, which most of us have done. But there is a risk now that some of the PT work is loss leading, and good brokers may go out of business due to the impact on revenues where PT work is eroding remortgages. This, in turn, could affect lenders’ new-business volumes as demand returns.
The Bank has already warned we could see almost half of businesses have difficulty in paying loans and debts
Hence brokers are now asking lenders for reciprocal support. It would be interesting to know what the actual cost to lenders would be to increase retention proc fees; surely a good use of PR and marketing budget to support your broker community.
That aside, as ever there is no point mentioning the details of recent lender rate changes, apart from to say ‘Thank you’ to lenders that are continuing to ease rates down towards a more competitive market once more. This is something we all need, especially our clients.
Criteria changes
There have been a few criteria changes. Digital Mortgages by Atom Bank has increased its maximum loan size to £1m for 80% and 85% loan-to-value prime products, and up to £750,000 for 90% and 95% LTV prime products. Income multiples for self-employed applicants have risen from 4.49 times to 5.5 times for those with a single income of £75,000, or a joint income of £100,000. It has also increased the allowable variable income limit from 50% to 70%.
While three-month Sonia has risen to 4.8%, the better news is that swap rates are still sporting speedos and bikinis, chilling nicely
NatWest has cut its buy-to-let stress rates, which is welcomed by landlords. Santander, however, has increased its stress rates, but changed the higher-rate tax band coverage from 145% to 140%.
Accord is increasing flexibility on affordability assessments by accepting some extra income types and benefits. This includes zero-hours contracts for specific keyworkers, limited company directors’ salary plus their share of net profits, some benefit types and annuities. For limited company directors, it will also now look at salary plus share of net profits (minus corporation tax) as an alternative to directors’ salary and dividends.
Finally, the Association of Mortgage Intermediaries is doing its latest broker survey on the protection market. This can be accessed via the Ami website.
Hero to Zero
The Working in Mortgages Mentoring Scheme — it’s a great idea and you would be a great mentor. Yes, you
Lenders that pay a proper proc fee on product transfers — your support is welcomed
Digital Mortgages by Atom Bank’s latest changes
Conditional selling by a few estate agents — they need to be reminded of what is allowed and what isn’t
Any further Bank of England base rate hikes
The rental supply issues adding to a dysfunctional housing market — housing must be a key policy objective of the next government
What Really Grinds My Gears?
As an AI from Koodoo just passed CeMap, I thought I would quickly delve into this.
The rise of AI is undoubtedly reshaping industries, and the mortgage sector is no exception. While AI’s capabilities in data analysis, automation and customer interaction are impressive, the complete replacement of mortgage brokers seems unlikely.
Brokers bring a human touch and specialised expertise that extend beyond AI’s capabilities. Securing a mortgage involves not only crunching numbers but understanding each individual’s financial situation and goals. Brokers provide personalised advice, navigate complex regulations and offer reassurance during a significant financial decision. Trust and empathy play crucial roles; elements that AI, despite its advancements, struggles to replicate.
However, the future may hold a hybrid model, where AI assists brokers by streamlining routine tasks, data analysis and initial customer interactions. This could free brokers to focus on strategic advice, client relationships and handling intricate scenarios.
(The above was written by ChatGPT in about five seconds.)
This article featured in the September 2023 edition of MS.
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