Mortgage brokers - are you talking with your clients about inflation?

Journalist: John Fitzsimons, Freelance

ended 17. May 2022

Morning all

Yesterday Andrew Bailey, the governor of the BoE, said that the bank was “helpless” to stop inflation hitting 10% this year.

Clearly, inflation is going to be an ongoing issue throughout 2022, so I'm keen to get an idea of how much, if at all, it's being discussed with your clients? What can brokers do to help clients prepare for rising costs on everything they buy? And are the rising costs already having an impact on the attitudes of your clients towards borrowing?

Any and all thoughts very welcome!

John

6 responses from the Newspage community

"The scourge of inflation is here to stay and getting worse day by day. For a while, I've been saying people should consider clearing their balance sheet with a debt consolidation remortgage and stretching their mortgage term to free up disposable income if they have the equity and time on their side, which may give people the breathing space they need to cope with the cost of living crisis. By consolidating debt, you're securing unsecured debt against your home, reducing equity and potentially paying more interest overall than you would have done. That said, people need more pounds in their pocket now. Of course, this is not suitable or appropriate for everyone and certainly does not constitute mortgage advice. Anyone considering it should speak to a qualified mortgage adviser to determine if it's appropriate for their circumstances."
"While a conversation about inflation isn't typical, clients are certainly talking about rising interest rates, as well as the usual "my mate Steve at the pub says that house prices are going to crash 20% later this year" conversation. The concern being shown is more about whether they will be allowed the mortgage they need to buy the house they want and will they lose money, rather than concern at being able to afford the house and its associated bills. The good news is that whilst it's not on a buyer's mind, it is on their broker's mind and their prospective lender's mind. Affordability calculations have been a central part of the mortgage process for many years now, so brokers and lenders will be looking at whether the house is affordable on their income now and in the future if rates and other costs increase further. We have been saying for a while now that lenders' affordability calculations will start to reduce the maximum loans available for a given income, simply as the underlying living costs built into them rise. We have recently had an email from Coventry Building Society to advise brokers that they are reviewing the living costs built into their calculator currently, and we're expecting others to follow suit. However, counter to this, Nationwide have announced an increase in their maximum mortgage cap to 6.5x someone's gross income, in certain cases. Again, we'll have to wait and see if other lenders choose to do something similar. So, inflation is impacting the amount people can borrow, driven by lenders more than customers, but lenders also seem to be working hard to mitigate how many and by how much potential borrowers are affected."
"The topic of conversation with clients for the past six months has been not just how quickly will rates be rising but also how quickly the cost of living will rise and how this will affect how much a client can borrow going forward, especially with energy bills expected to rise once again in October. Winter is well and truly coming unless there is government intervention. I am finding some clients are not looking to max out their borrowing potential, which is likely the sign of the times to come."
"It's always the hot topic at the moment when we complete a budget planner with clients. We've always allowed breathing space but that's getting eaten up. The real problem is that there is sweet F.A. that the Bank of England raising interest rates will do about inflation because these price rises are not homegrown but global. All rising interest rates are doing is making something already really painful for households even worse so the powers that be are able to say they tried to do something. The inflation horse has long bolted."
"Scaremongering at it best. Did Martin Lewis write this? We are seeing many more clients going for 5 and 10 year plus fixed rates, but it is all about preparation. Yes, rates could shoot up, but if you have been sensible and engaged with a broker, your rate should be fixed for a number of years so it isn't something to be concerned about until closer to the time. If you haven't got yourself into a new fixed deal, delaying could prove costly."
"As a conversational topic, inflation is as hot as a glowing fire poker, and everyone is getting jabbed with it. Really, the only two options available to combat this cost of living crisis are, earn more or spend less. Our role is to try and trim down our clients' costs by making sure their borrowing is on the best deal possible and potentially look to consolidate debts with a high APR to perhaps free up some surplus income. But equally important is making sure clients have the right type and amount of protection in place, such as life cover, critical illness and income protection. With things already getting tight, a death, accident or serious illness preventing work and therefore income, could be financially catastrophic for families, and the importance of well rounded financial advice has never been higher."