Mortgage pricing is, we are often told, a difficult job.
We have no reason to disbelieve that, after all, there are thousands of products competing in the same space, and you have to weigh up not just your own cost of funds, tranches to lend, margin, criteria, borrower needs, regulatory responsibilities, etc, but that of all your competitors.
You also have to understand your own service levels, what you can achieve, what your customers and their advisers might put up with in that regard, and again what your competitors are doing.
We are constantly told that no-one wants to be ‘last lender standing’ when it comes to pricing, or indeed, criteria; no-one wants to be that mythical swimmer revealed to have no trunks when the tide goes out.
Or in the case of lenders, caught short by the swiftest of market changes and left to deal with a surfeit of business because they are that last lender to pull and/or reprice.
And so yes, we understand that there is a lot that goes into mortgage pricing and ongoing mortgage availability. But, as Roy Keane is prone to say, “That’s your job.”
That’s what you do and for the most part you’ve been doing it for a very long time. Which is why it is still so surprising to see major lenders – some who have been around for decades, if not hundreds of years – getting it wrong time after time.
It has become a huge issue for advisers and is impacting on their credibility time and time again. Products which we believe we have secured for the client are pulled with barely a second’s notice, leaving both us and the client wondering what just happened.
We have reached a point where a lender that provides two days’ notice on pulling and/or repricing products is seen as the adviser’s favourite.
The need to react quickly is constantly there, and yet somehow lenders are tending to forget that borrowers like to think about, what is often, their biggest financial decision.
They tend not to like to be hurried or harried into agreeing to a recommendation that has just been presented to them.
The problem is that we are increasingly finding that by the time they’ve thought about it, the product and its rate has gone.
We have a client that at the tail-end of last year was recommended a 1.14% 5-year fixed-rate deal; now, through a variety of delays in the system with surveyors, valuers, and the like – another huge bugbear in today’s market – he of course can’t secure that rate.
Instead, he has just had to ‘settle’ for a 2.28% 5-year fix which is essentially going to cost him £390 per month more on his mortgage payment.
Now, again, we recognise that the market has shifted. Bank Base Rate (BBR) has gone up. Swap rates have moved. And lenders need to react to that.
However, the constant cycle of rate moves upwards and product pulling, in a lot of cases can’t be justified at all.
Especially when rates have been moved well in advance of, for example, BBR – after all, we’re not seeing saving rates moving by more than the increases in Base Rate, so why should we see mortgage rates?
And it is a cycle, because as mentioned, one moves and they all move – even those who lend their deposits. Someone is always going to be last lender standing, and they are likely to get greater levels of business because of that, which impacts on their service, which then impacts on their existing rates, which leads them to move, at which point the market looks around and the merry dance starts again.
So, there are a number of points to make here. Firstly, on rates themselves it seems fairly obvious that some lenders are profiteering here in terms of the increases they have made recently which far outstrip what might appear reasonable.
Rates have increased by about 40% in just six weeks, and yet lenders still want people to purchase – it’s counter-intuitive.
Secondly, is the constant changing and the (lack of) communication about when this might happen.
The fear of losing a product is not healthy – it means advisers have to book products without all the necessary documentation, which clearly impacts on the quality of the business and opens the door to more attempts at fraud.
Finally, lenders seem utterly shocked they are conducting the same levels of business they achieved last year.
As if, the targets they set themselves for 2022 were arbitrary and they were never meant to do more.
Which means their resource and service seem to be under constant pressure, which appears to mean never-ending price resets in order to cope.
This does not help advisers, and it certainly doesn’t help clients. A commitment to at least consider both when repricing and reviewing products would not go amiss.
Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services, the mortgage and protection network
