"Given that the majority of borrowers have been burdened by a considerable increase in their monthly repayments, many are approaching us long before the maturity of their existing rate."
How does the market fare currently?
Despite the fall-out from the mini budget and the most recent Bank of England base rate rise to 4.5% - which only adds to the financial turmoil we’ve experienced since the pandemic - the consensus is that the economy is heading back to calmer waters.
For people across the UK, it will seem they’re being squeezed from all angles, with inflation continuing to push prices up and interest rates likewise increasing the cost of mortgages.
There is, however, hope that we have nearly reached the summit of the interest rate mountain and will shortly start our descent toward a lower cost of borrowing.
Unemployment rates and wage growth are in a better position than expected, and mortgage rates are starting to stabilise, which in turn will lead to increasing consumer confidence. Baseline forecasts suggest a gradual decline in growth from 3.4% in 2022 to 2.8% in 2023, before settling at 3% in 2024.
While house prices increased on average by 20% over the course of the pandemic, we expect to see some sort of correction in that area moving forward. The Office for Budget Responsibility has suggested as much as a 10% fall in house prices by 2024 due to rising mortgage rates and squeezes on household incomes.
If we’ve learnt anything over the last couple of years, it’s that we’ll never truly know what we’ll come up against next. While we’ve again demonstrated just how adaptable intermediaries are, brokers need to remain on their toes and be ready to react and respond to the latest market changes, as and when they develop.
How has customer behaviour changed in light of uncertainty in the mortgage market?
Given that the majority of borrowers have been burdened by a considerable increase in their monthly repayments, many are approaching us long before the maturity of their existing rate. Furthermore, first-time buyers now typically spend 40% of their income on mortgage payments, and we understand that this is not inherently sustainable.
Although we believe intermediary market share of the purchase and remortgage market currently stands at a record 89%, the share of the product transfer market is considerably lower at around 40%. While the vast majority of customers would opt for the choice and reassurance of a mortgage broker provides, there is still a decent chunk of business going to lenders directly. This is because contact is just not being made in time, with little or no contact during the fixed rate term. Sometimes we can’t beat a lender’s rate, but we have to be in the race to have a chance of winning, and although some intermediaries retain 80%+ of their customers, others can retain less than half that level.
The landlord market is not above a reprieve, either. In terms of customer behaviour in this demographic, high mortgage rates have prompted some landlords to switch to cash purchases, and 59% of UK buy-to-let purchases are mortgage-free so far this year.
How should brokers be advising customers in current market conditions?
Whether you’re a brand new broker or highly experienced, nobody is expecting you to be an interest rate expert, as even those who have been in the industry for years get rate predictions wrong.
The key is to understand the risk approach for the customer. If they’re stretching their income, you have to protect against further interest rate rises by encouraging them to lock in now, rather than waiting to see what’s going to happen. If your customers can afford that increase in their mortgage to secure a larger property, or move to a better catchment area, then brokers should encourage them to go for it. Moreover, if there is the option of enabling customers to lock in that cheaper rate, you absolutely have to follow through on this, as at the end of the day, we’re always on the lookout to save customers money.
How can brokers ensure they retain clients in light of ongoing uncertainty?
Securing a new deal now is the recommended course of action for clients, as you can’t predict where rates are going to go. You should also offer to regularly review their circumstances as you get closer to that product end date. However, it’s important to note that any time is a good time to speak with your clients. You’ll find them to be extremely appreciative of you taking the initiative to contact them throughout the duration of their mortgage deal, as it demonstrates that you’re keeping their needs at the forefront.
In the current climate, acting with urgency is key to client retention. Have in-depth conversations around what the customer is planning to do, both short and long-term, to keep their mortgage payments down. With the market starting to settle, brokers have more time and attention to dedicate to each customer, ensuring you can deliver bespoke advice that meets their needs.
It's also important to incorporate protection early on during the retention appointment, being as open and transparent as possible. Given rate rises and the cost of living crisis, it's no surprise that people tend to respond by saying they don’t know if they can afford protection. However, you can use this indecision as your buy-in. For instance, if their income is already stretched, how is this going to look if they lost their income?
Often, clients will have a figure in mind of what they expect their payments to increase by, and despite the current market, it's not always as bad as they think. This makes the conversation much more natural and easier to engage in, as you can use this opportunity to see what you can protect with this amount – making for a more meaningful review.
Although customers are expecting an increase in their regular mortgage payments, they’re still looking for reassurance, so brokers need to be having open, confident conversations and helping to keep the anxiety at bay in an altogether unpredictable market. Use this as an opportunity to take control and speak to clients at any time and as often as you possibly can, adopting the mindset that if you don’t ring them, somebody else will.
