Ours is an industry which loves an acronym, from the BOMAD to the JAM, the FTBs to the LTVs, the BBRs to the DIPs, there is barely a mortgage industry term which can’t be scaled down to its first-letter constituent parts.
Over recent weeks, months, even years, there has been a collective and growing feeling that those in charge of the economy and indeed, our country as a whole, have been failing us.
To add another acronym to the mix, the performance of the Government, the Bank of England, the Treasury has been simply NGE – not good enough.
Nothing perhaps represents the NGE nature of what we are being presented with than the attempts by those institutions listed above to get inflation down from its searingly high levels, which in turn of course helps in terms of the cost of living crisis, but also interest rates, and everything that stems from that.
The decision to raise BBR by 0.5% last month was wholly inevitable, particularly after the inflation figures revealed no movement downwards from the previous month, and core inflation actually rising.
Heaven forbid we might have confidence in the Bank’s strategy over the last 18 months to have actually worked. Although the fact that it hasn’t up until now, should perhaps have given us an inkling that it’s not quite sure what else it can do.
It has no options, and the one it does have is a hugely blunt instrument. The fact that the Treasury and the Chancellor appear to be increasingly at ease with a recession, might also suggest it is prepared to opt for this nuclear option in order to curb inflation. It really has come to this.
Which makes the Government’s pledge to ‘halve inflation’ in 2023 – although we notice that Rishi Sunak has changed his wording to ‘reducing’ inflation – even more unlikely.
The fact Sunak now appears to be putting the blame for inflation being high on the preponderance of fixed-rate mortgages seems utterly bizarre. Is this really the argument he wants to have? Fixes have been around for a quite a long time, Prime Minister.
What is he suggesting here, move everyone to trackers? If you want to curb spending, then fixed-rate mortgages are not your biggest problem. Think of other solutions – increase VAT temporarily, for example.
Add this all together, and you can see why NGE seems to be the go-to description of what is going on.
And that feeling has severe consequences for all of us working in the mortgage market, because what we have is The City utterly spooked by the Bank of England not being good enough (NBGE?) to get inflation down, which means it has less certainty over what happens to rate levels in the future, which of course means swap rates continuing to go up, which in turn spooks lenders, which in turn changes product rates constantly, which leaves us with short notice withdrawals, which in turn leaves borrowers potentially having minutes to decide on their products, which may ultimately lead to poor consumer outcomes.
For us as mortgage advisers, and our clients, we should not underestimate how nervous many lenders feel in this current marketplace.
And what happens when lenders feel nervous? Well, they certainly err on the side of caution, which means pulling products and rates which they feel are riskier, but they also price in extra margin into their existing product rates, because they want to make as much profit as possible, given the uncertainty that might stop them offering other products which they would ordinarily be comfortable with.
They will also buy smaller tranches of money to lend – much less than they would have two years ago – and a limited appetite to lend at a higher margin clearly impacts the availability of mortgages to borrowers, and of course the price they are going to have to pay for their finance.
It is something of a vicious circle, but it essentially comes back to that lack of confidence in the so-called ‘experts’ to do their jobs and deliver what they are actually paid to do. Lest we ever forget that the MPC’s role is to keep inflation at a 2% target – imagine inflation being anywhere near that right now, and you might be able to envision a very different mortgage marketplace for us all.
The fact that the Governor of the Bank of England, Andrew Bailey, doesn’t appear to be looking over his shoulder in nervous anticipation of a Governmental shepherd’s crook, perhaps also shows you the ‘power’ of this current administration. Even after getting it wrong or being too slow to act over many years, one wonders whether they believe getting rid of a BoE Governor now – just 18 months or so before a General Election – would actually inflict more harm than good. It looks like we’ll never know.
So, while all this is going on, and we are dealing with the fallout, it’s advisers and their clients who are effectively left to pick up the pieces of this NGE attitude and strategy. Muddling along is the new short/medium/long-term strategy and all we can do is hope there is a degree of transparency of what is really going on here, and why we are having these difficulty conversations with borrowers.
Perhaps the fact there is no MPC meeting in July might be something of a blessing.
A chance of respite and hopefully a slight opportunity for calm. What would certainly help – especially if core and overall inflation are shown to have fallen this month – is for the BoE to hold its nerve, to not increase BBR again, and press pause, much like the US Fed do.
They won’t do this of course and we suspect we’re on a path to Base Rate of 6.25% in the very near future, and the implications of that should be obvious to us all.
This will remain a very stormy period, and we have not been helped by those institutions who have been NGE. An improvement is needed and needed swiftly. Whether we get it, is another matter entirely.
Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services, the mortgage and protection network
