What does it mean for clients coming off fixes?
Luther Yeates (pictured top middle right), founder and head of mortgages at Orton Financial, told Mortgage Introducer the inflation data had done little to clarify the picture ahead of next week’s MPC meeting. Lenders had been raising rates in recent weeks, and he said it is not straightforward to attribute that entirely to the conflict in Iran.
“The only part that’s unclear is whether it’s directly related to that or whether it’s related to the next Bank of England assessment,” he said. “Because what the banks often like to do is they do like to move their rates in advance of that, so then it means that they feel like they’ve got a bit more manoeuvrability if the rate does change.”
He added that the tracker mortgage conversation had become increasingly common as clients weighed up their options against a shifting rate backdrop. “A lot of clients are drifting towards the trackers because if you jump on mortgage sourcing and just plug in the basic numbers, it’s tracker products which generally are coming out more competitive than a fixed rate.” He said a second conversation is often needed before clients were willing to engage seriously with the idea, and that active management is now essential if the Bank of England moved.
Yeates also noted widespread confusion among borrowers about the relationship between the base rate and their mortgage – a challenge that had grown as swap rate volatility has increasingly driven lender decisions. “A lot of people think this is the main thing which is going to actually impact and set my mortgage rate,” he said. “Whereas actually, unless they’re on that direct base rate tracker, it has no real bearing at all. And as we know, the pricing of their mortgage actually is more likely to be impacted by something happening thousands of miles away than it is by a decision made in London.”
Dhanota said the media’s focus on headline rates is creating a distorted conversation between brokers and clients. “I have clients calling asking what rate are you able to get as I have seen a rate of x% online and want to see if you can get a lower rate. My approach is, I’ll say, okay, let’s forget about the rate for one second. Let’s discuss how much you can afford each month and work it backwards, and look at your specific situation and which lender will consider your application. And then what transpires out of that exercise is the rate in itself is not the most important factor, you may not be eligible for the lowest rate available, and lender fees and costs also need to be considered, and of course the monthly payments needs to align with your budget and affordability.”