Hike in mortgage rates - looking for comments

Journalist: Emma Simon, Morningstar.co.uk

ended 18. March 2022

I'm looking to get comment from mortgage brokers and/or lenders on rate rises in the residential and buy-to-let markets. This is for the cover feature for Mortgage Strategy. Interested in comments on:

  • Are rate rises fuelling short-term demand, as borrowers look to lock in now ahead of future increases?
  • Are there areas of market particularly affected, e.g. certain types of product (resi- or BTL ) , two or five year fixes, or at particular LTVs?
  • Is this creating problems for brokers? Are you offering rates, only to see them disappear before customer confirms deal?
  • Are lenders doing enough to help - or are they too quick to withdraw products? Do some give notice of rate withdrawals?
  • How can brokers help clients navigate a difficult, and rapidly changing market?

11 responses from the Newspage community

Star Quote
"Rates can change or be gone in a wink of an eye so borrowers who are lingering on a variable rate or with deals coming to an end within six months are looking to fix into a new deal now, especially with living costs spiralling out of control. Currently, all areas of the mortgage market are being affected daily according to the ever-changing vagaries of lenders' appetites. A deal that's available today may not be here tomorrow so advisers are under huge pressure to get applications into lenders in a timely manner subject to clients' go-ahead. Clients and brokers are under immense pressure to ensure everything is done in a timely fashion. Right now we are pretty much screaming 'This is Sparta', it's so brutal out there. Deals are disappearing quickly so there's no time to dither. You just have to pull the trigger and secure the deal while it's still available.  "Some lenders give 24 hours notice and some are being an absolute pain in the proverbial backside with product withdrawals being announced 30 mins before the end of the business day. What planet are these people on? Brokers need to ensure clients are told upfront that deals can change without notice. If deals keep getting removed as quickly as some have been in the past few weeks, advisers will be doubling up as therapists before you know it."
Star Quote
"A rising rate market always makes life difficult for brokers and clients alike. Taking on a mortgage is a big decision, so having to put people under any kind of pressure to make their mind up is never a comfortable position to be put in, for the broker or the borrower. I always feel like some shady, dodgy salesman when I tell a client "you can't sleep on it, this deal might be gone by tomorrow". As a broker, all we can do is warn our clients that the market is very fluid currently and anything we quote is valid at that time only. As a client, all you can do is respond to your broker as soon as you possibly can in terms of making decisions and providing documents. Everyone would love it if lenders gave us more notice of rate rises, but the sad fact is they probably cannot; either because they themselves are caught short by their own funders increasing costs, or to protect their service standards. A lender could see up to 10x the normal level of applications if they give even 24 hours notice of a top deal being withdrawn. No one can cope with that sort of additional workload and still deliver an acceptable service."
Star Quote
"The current situation is the worst I've seen since being a broker, with deals being pulled by lenders faster than you can submit business. I've had a client recently who missed three deals because they didn't get back to me with the required documents in the timeframe I requested from them. That has cost them £4,000 over the next five years because of rate increases. One thing is for sure: when a broker asks you for documents, you must send them within 24 hours, in the format that has been asked for. Clients shouldn't fall into the trap of 'thinking' something will be ok or 'assuming' anything about a certain document or format. Instead, they need to follow to the letter what the broker has requested and listen to them. I often get the impression clients think we're using some form of sales technique when we're saying we need to get on and submit ASAP when the reality is lenders are refreshing their ranges at breakneck speed. "Rates are rising across the board, and it's set to get worse. More rate rises are almost guaranteed given the inflationary threat. If there's one thing that lenders could do, it's offer a little bit of notice before they pull deals. I know some lenders do an amazing job of this but there are a number that don't. In short, it's going to be tricky for the foreseeable future. Clients need to put their trust in their broker and do as they ask. After all, they're trying to help you, so work with them."
"I have found that it's only residential, buy-to-let and commercial mortgages that have been affected by the rate rises so far. Within bridging and development finance, rates have stayed the same if not improved as the 'race to the bottom' continues. There is certainly improved demand with clients wanting to refinance now before further rises, but at the same time I feel this could be partly why the short-term lenders are getting more aggressive, pricing so that clients look to get more flips done, instead of holding long term for yield. I find myself recommending to clients to get the longest term possible ahead of further rate rises and, if anything, to focus on residential investments where rates are still competitive versus commercial properties. To support clients, it goes back to understanding their long-term goals. All that's happening now is the Bank of England base rate is rising back to pre-pandemic levels and it's still a long way off where it has historically been."
"With the Bank of England consistently hiking the base rate, mortgage deals are being pulled far more often than previously. Lenders often give less than 24 hours notice, which makes it challenging to get deals through. We're getting many residential enquiries looking to remortgage and fix for five years or more while rates are still, by all historical standards, incredibly cheap. Many clients are nervous about Ukraine, and where house prices are heading. There is a significant amount of economic and geopolitical uncertainty right now."
"Rates at the moment feel like the criteria changes we had during Covid. Every email that lands in my inbox seems to be about a rate changing or products being withdrawn. It's easy to blame the awful conflict in Ukraine, or the rising costs of fuel, but there is no rhyme or reason to it. We can start an application at 4pm having quoted the client their interest rate and, by 6pm, that product can no longer be available and we have to tell the client their deal is now more costly. Last week TSB withdrew all their products. Again, like in Covid times (the bad old days of Covid), lenders are falling behind due to sheer volume and are removing products as and when they feel they need to in order to play catch up."
“To add real value to client relationships, advisers need to be able to assist their clients to navigate the finance market regardless of the conditions. This involves being dynamic enough to adjust the strategy as the tides change. A 'one trick pony' isn't going to work. The present challenge is that lenders are also being influenced by high inflation, rising interest rates and political uncertainty. The result is rapidly changing mortgages deals, with products available in the morning, withdrawn by the afternoon. Unless acting in 'real time', it's challenging not only to get the best deal for a client, but to work in an efficient and productive way. “One of the strategies we are currently employing to manage some clients’ interest rate risk is to lock in a potential new deal as early as possible. We take advantage of those lenders who can effectively lock in an interest rate nine months in advance. Some lenders offer a decision in principle which initially secures a rate for up to three months, which can then in turn be converted into a mortgage offer which is valid for a further 6 months. In the unlikely event interest rates reduce over that period, nothing is lost, as the deal can be cast aside leaving the client to select from what is currently on offer. It's a win, win for those coming to the end of a fixed rate deal and concerned about increased costs.”
"We have seen some small increases in buy to let mortgage rates but nothing to put off potential property investors just yet. However what we are seeing more of, is a preference for 5-year fixed rate deals. Many of our property investor clients are of the view that the base rate will continue to increase as we go through the year. Previously they may have been tempted by the lower rates offered on a 2-year fixed rate buy to let mortgage."
"Yes interest rates have increased. But let's take stock. They have increased from a low that nobody had ever predicted. I did a 0.99% fixed for five years for a client last year. I couldn't believe it, and neither could they. And there were lower rates that were available for the right arrangement fee. In reality, rates are returning to levels we'd come to expect and been quite used to so it's hardly the end of the world. The way some lenders have withdrawn products with just hours' notice is unfair on customers, though. Having to explain to a client that they have to decide right away to get this rate or it goes up tonight, with no way to reserve the product in the meantime is hardly treating the customer fairly. Surely the industry needs to agree a minimum notice time for products being withdrawn where it's purely for a rate change."
"Landlords are not known for their generosity, and we are already seeing them passing on the increase in costs such as mortgages, in the form of higher rents to their tenants."
Personally, we are not experiencing a huge uplift in demand. People are keen, but many unfortunately do not understand the impact a small rate rise can have. The more specialist cases have certainly been most affected by the recent rate rises, with a 0.25% interest rate rise subsequently resulting in a 0.75% or even 1% rate rise for these types of products. 5-year fixes have also been impacted, with lenders ultimately taking a bigger risk on longer term products. It is creating huge problems for borrowers and whilst some lenders are very helpful and give you plenty of notice. Others, give you but a day before they pull the product, which just creates more work for us and unnecessary aggravation for the client and everyone else involved in the process. Lenders with huge volumes seem to be struggling the most, but there are ways around this such as limiting the number of applications. As brokers, we need to help our clients understand just how quickly the market is moving. At present, there is no real sense of urgency, and many buyers are consequently getting caught out because they simply haven’t acted quickly enough.