You might very well argue that where swap rates lead, mortgage pricing follows, and it has not been any sort of surprise to see lenders cutting product rates recently as swap rates have continued to come down.
As I write, we have a situation where 7-year, 10-year, 15-year and 30-year swaps are all below 4%, while 5-year money is only just above 4%, and both 2-year and 3-year swaps are over 50 basis points below where they were just a month ago.
That pricing doesn’t just happen by accident, and it is based off increased confidence that, for example, inflation is coming back closer to target, and the Bank of England won’t therefore feel the need to increase Bank Base Rate (BBR) further in order to try and move the inflation dial down.
The recent inflation figure of 4.7% in October shows a considerable drop from the month previously, and while this might have been anticipated, it does hopefully give the Bank of England time to at least continue with its most recent decisions to keep BBR where it is.
This inflationary drop has also instigated some further questions about when the bank might look at cutting BBR, with some commentators now suggesting that a rate of 5.25% isn’t necessary, and that cuts might come sooner rather than later.
My opinion is that it’s unlikely the bank, and Monetary Policy Committee (MPC) members, will want to act too soon, as inflation doesn’t normally trend in a linear fashion.
It might therefore wish to keep BBR higher for longer, see if there are further falls in inflation, and take it from there.
However, even if BBR remains at 5.25% over the course of the next few months, this doesn’t necessarily mean that swap rates won’t continue to move downwards.
And, if you add in the need for some serious lender competition in order to secure business volume as we enter a new year, then we might well see rates continue to go lower.
That, in itself, is good news worth shouting about, particularly for advisers and all their clients who are coming to the end of their deals.
This has undoubtedly been a tricky conversation to have with many remortgaging borrowers over the past 12 to 18 months, not least in terms of higher rates, harder affordability, and higher mortgage payments.
I wish we were in a position to say to existing borrowers that there is the opportunity for lower monthly amounts, but that still seems fanciful for the majority. Instead, for the most part, this will all be about mitigating any increase and hopefully ensuring any payment jump is not too large.
Lower product rates of course help in that regard, not least because they offer non-product transfer (PT) options, particularly important for those who may have only had this available to them because of the difficulty in getting over higher affordability barriers due to higher rates.
We do not yet have the PT numbers for 2023 but I can imagine they will be sizeable and, even if advisers have taken a much larger share of this business in recent years, they don’t pay as much as remortgage activity, plus of course there is less chance to diversify and cross-sell with PT clients.
Lower remortgage rates should mean more remortgage borrowers, and it is at this point advisers can go into ‘full service’ mode covering off other wants and needs, such as protection, but also remortgage conveyancing.
We’re all acutely aware of the potential issues of putting clients into free legal offerings with a remortgage, especially at a time when processing cases can take so long.
Broker Conveyancing has recently launched a new fixed-price remortgage product, a cost-effective option for simple remortgages with mainstream lenders, which includes a telegraphic transfer fee and ID fee.
It also gives the adviser the option of adding a £100 or £200 referral fee, which can clearly make a significant difference in terms of income generation if they are working on a large number of remortgage cases. With the other ancillary options, this can clearly add to the bottom line, at a time when income from other sources might not have kept pace with ambition or target.
Overall, it would clearly be positive to see product rates continuing to fall in the months ahead, not least because we know there are millions of borrowers coming to the end of deals throughout 2024.
A PT option is nice to have on the back burner, but if there is an opportunity to remortgage a client to a more suitable, better priced deal, then this does open up the door for a much wider range client discussion, and the chance to ensure advisers cover off as many of those needs as possible.
Mark Snape is chief executive officer of Broker Conveyancing
