Nobody within the mortgage industry will have been particularly surprised by the Bank of England’s decision to increase bank base rate once more.
We have now seen ten consecutive hikes to the base rate to its current level of 4%, the highest seen since 2008 and the aftermath of the financial crisis, as the bank battles against the threat of inflation.
Given inflation remains stubbornly high, it was somewhat inevitable that the Bank of England would opt to increase the central rate once more.
However, what is perhaps surprising is that interest rates on mortgages are heading in the other direction.
Rather than seeing typical fixed rates increase as base rate moves, what has actually happened of late is that lenders have attempted to become more competitive, cutting the rates on offer.
Virgin took the headlines by releasing the first sub-4% rate since October and the chaos of the mini-Budget, but it was only a matter of time before someone did.
Since the start of the year, brokers will have seen a succession of lenders moving to reduce the rates charged from their pre-Christmas highs, presenting their clients with more affordable options.
But it’s worth noting the impact that different funding sources are having for lenders when it comes to pricing their ranges.
For balance sheet lenders, the cost of funding is likely to increase. As base rate goes up, there is an expectation that they will have to improve the rates on offer for depositors in order to compete for savers’ cash.
By contrast, for lenders like LendInvest who raise funds through the capital markets, costs have largely stabilised.
While there was the initial jolt sparked by the uncertainty of the mini-Budget, swap rates have come right down since then.
It has left the market in the position where the rate differential between the balance sheet lenders and those with other funding sources is now much smaller.
Looking beyond the rate
That is undoubtedly great news for brokers and borrowers alike.
With so many lenders pricing their deals within a similar range, it means that there is no shortage of options for clients, particularly those with the most vanilla of circumstances.
But it also means that a greater focus needs to be placed on what brokers look for in a product beyond the headline rate.
The cost of a property loan is always going to be of paramount importance, whether the client is a first-time buyer looking to take their first steps onto the property ladder or an experienced investor who wants to add to their extensive portfolio.
However, brokers know that there is more to the job than simply picking out the cheapest rate and acting as effectively an order taker.
No, the best brokers have always prided themselves on considering the whole picture when making their recommendation, taking into account those additional factors which can make all of the difference between a smooth borrowing experience and a nightmare one.
What makes a good lender?
There is more to a good mortgage product, and for that matter a good lender, than rate alone.
We know from the many conversations we have had with brokers over the years that service is valued just as highly.
Brokers want to know that when issues arise ‒ and inevitably with the property market, there will be times when they do ‒ that they can pick up the phone and speak to someone at the lender who can assist them in some way.
It’s those relationships, those channels of communication which can help cases cross the line which might otherwise have fallen by the wayside.
Similarly, brokers know that increasing numbers of borrowers today fall outside of what might be considered ‘vanilla’ circumstances.
There are all sorts of perceived complexities, such as their employment status or varied sources of income, which can lead to difficulties in obtaining property finance.
As a result, lenders who are able to take a more open-minded approach towards these cases, and will take the time to truly understand the application rather than dismiss it out of hand based on those apparent complexities, will be appreciated by intermediaries.
Equally, there’s the question of trust. If a broker is going to recommend a product, they want to have some level of certainty that the lender can deliver on those terms.
The experiences of last year will last long in the memory ‒ intermediaries want to have faith in a lender’s funding structure, confidence that a lender can deliver on its promises and the client will not be left exposed should the market once again turn difficult.
Ultimately, a lot of this comes down to communication. Lenders that take the time to understand brokers and their businesses and ensure that placing business with the lender is smooth and reliable, will always win favour with intermediaries.
After all, when things go well with a lender, it’s the broker that gets the credit.
By delivering a satisfying borrowing experience to the client, the broker strengthens their relationship with them, boosting the chances of them coming back in future not only for their refinancing needs but other financial queries too.
A good experience can turn them into a client for life, and it’s those repeat clients who are the very foundation of a thriving intermediary business.
Esther Morley is MD specialist residential at LendInvest
