Let me take you back… it was 2007 and as a young, spritely, starry eyed young man the time was right for me to take on my dream of starting my own business and doing things my own way!
So there I was with my laptop, my printer, my shiny new business cards and a few clients to get along with…
Things started quite well, I was building a pipeline and helping clients where I could and the buzz felt great, I was suddenly writing business which came directly into a business I owned and Mrs L would sit and help me, around a new born baby, run those cases…
Then BANG…. The news came on and Northern Rock, who were a fantastic lender at the time offering sensible clients an ingenious opportunity (so I thought) to obtain home ownership… Had hit some turbulence… a run on the bank insued… and pandemonium following that as we started to witness the fall of the financial system as we knew it!
The financial crisis was the cogs of commerce grinding to a very abrupt halt, and we all found out how interlinked the worlds finances were… and goodness me did that happen quickly, with bank after bank scrambling for dear life…
On the shop floor this manifested itself with loan to value’s being slashed, products disappearing quicker than Lord Lucan, and when I, Mr Mortgage Broker went hunting for a product for one of my clients…. Very little or nothing!!!!
Now we seem to be finding ourselves back in these unsettled financial times, and markets reacting in such a volatile fashion only impacts all of us with costs for seemingly everything in the world increasing without our wages doing the same…
However, when times get troubled it is important to not get too caught up in the hype and actually ‘hover above’ the situation to take a realistic snap shot of what is actually happening…and from someone who has seen it all before!!!
So, yes… rates are certainly increasing but the reasons they are doing so are two fold – one is that the cost of a bank borrowing from another bank to lend to us has increased, and when they increase as swiftly as they have been lenders literally cant work quickly enough to re-price… the second reason is based loosely around conditions in the market as well… and this needs a little more explanation…
Mortgage intermediaries or mortgage brokers represent 85% of all of the mortgages written in the UK now, and all of us use something called a sourcing system to take our view of the market on each and every case we undertake (the only slight difference from one broker to another is the amount of products showing on that system… and independent mortgage brokerage, like ourselves sees every lender and every product offered in the UK on our system whereas a ‘Whole of Market’ broker will only be able to see the cross section of lenders that their network allows them too… and to call yourself ‘Whole of Market’ under the FCA regime means that that panel has to ‘represent’ a whole of market offering… hugely grey… but at least you know now!)… Now the reason this is important is volume of business… So imagine this, a lender, lets say Bank A has a two year fixed rate at 4.5%… but Bank B and Bank C have re-priced to 4.8% on their two year money… what happens is all of those brokers suddenly point all of their business towards that lender… and carnage insues… not enough underwriters, not enough surveyors, delays to service… pandemonium! So they then re-price… not because they have to but because they cant cope with that volume of business without crashing in the background… so then the market has shifted… we all rush to grab the rates, causing stress our end and a lot of long hours!!!!
The answer for us all is to settle… we want it, banks want it, surveyors want it, solicitors want it and all of us as consumers are absolutely desperate for it…
Over the last couple of weeks we have seen these swap rates (the rates banks charge each other to borrow from each other) rise rapidly on the back of the mini budget, and in the last few days fall very marginally… so we are hoping that the mortgages we are able to offer to clients does reduce in line with this market movement but at the least… back to that word again… Settle!
Senior members of the UK’s largest banking institutions met with the chancellor last week and they discussed the return of the ‘Help to buy’ guarantee at 95%… I was asked about this last week, the question was as follows “We still have 95% mortgages on the market so why will this help??”
So let me explain why this maybe important… when lenders lend they put some distance between the value of a house and what is owed – the higher the loan in comparison to the value – the higher the amount of interest they charge… increased risk, means they charge more… as a lender their business is to make money on the back of lending it, and this means that we have to repay the money we borrow with interest charged on top… if we don’t pay back what we owe then as a last resort they will start proceedings to repossess… (this isn’t meant to scare anyone, and lenders will always do this as a last resort but we have to be honest and realistic that if thing do get really bad for a client for whatever reason the lenders can sometimes be left with no other choice…)
At repossession stage is where they would get their money back based on the contract (Mortgage) we have with them… i.e. interest rate plus what we owe…
So, coming back to the original point why could 95% need to remain in the market?? Well because if the housing market was to drop, lenders would be left lending at 100% potentially or even greater so their risk appetite at these high loan to values could drop and they will start to drop the minimum deposit required on a new product… again something I saw through the financial crisis and even in COVID… so in a market with fluctuations as they are and house prices holding but perhaps people ‘holding off’ to see whether house prices do drop… less buyer’s vs more housing stock = house price drops which in turn increases the risk for the banks, and their next move would be to squeeze loan to values… the government stepping in could be a little forethought that we all require to keep our market stable
At Affinity we are here to help and assist where we can to try and cut through the market, lock in rates as quickly as we possibly can and stand next to our clients to explain all of this in a clear, fair and concise manner… we are a FEE FREE INDEPENDENT MORTGAGE BROKER for our residential mortgage offering – so you really have nothing to lose and everything to gain by asking us for help… and with a 5 star service as recommended by our clients, now is the perfect time to get in touch..
