"We should all be cognisant of just how much rate talk breaks through. ‘What’s the best rate?’ will always remain a go-to question for clients and it’s always going to need answering by advisers. "
To make an obvious point, product rates matter. Why? Well, again to be obvious, because they determine what a client will pay for their finance.
Which is why any discussion of rates, either current, previous, or future, is going to be listened to intently. Do we really think that clients are not interested in rates? Of course they are.
Perhaps they do not listen or tune-in to all rate discussions as those of us working in the industry tend to, but they certainly pick things up.
For instance, what do we think they might have been hearing lately? Certainly that the Budget has impacted rates in a negative way, and product rates have risen. But are they aware of how short-term this period might be.
It doesn’t mean that the view over the next two years, or even the next year, has really changed that much. Rates are likely to come down, even if the Governor of the Bank of England thinks they might not now come down as quickly as they previously would have.
I would agree that a BBR cut in December is now looking unlikely, and then somewhat weirdly, we don’t have another MPC meeting until February 6th. But, what’s going to happen in the meantime?
The likelihood is that the US Fed will have cut rates by then again, potentially a couple more times – add to that the start of another Trump Presidency, and the likelihood is that we will have to cut rates in February. Let’s be frank here, where the US leads we are more than likely to follow.
So, yes, product rates have gone up – that is the fault of the Budget – but overall we are still likely to see further falls in the future. Indeed, on the day I write this, Barclays have announced they are to cut rates, and the likelihood is that others will follow.
Lest we forget, we are not too far way from the end of this year and the start of next and lenders will want to hit the ground running. Rate cuts have always, and will always, instigate demand, acting as a catalyst for activity especially if many borrowers or would-be purchasers/home movers have felt the need to sit on their hands recently.
Rate cuts will have an impact. On that point – and a slight digression – but on that very theme it has been interesting to see what has been going on in the later life lending sector recently, particularly lifetime mortgages.
There has been a lot of market noise about a merging of mainstream and later life lending options, and the need for advisers to be able to advise across both for older borrowers. All perfectly reasonable, and coupled with some of the product/criteria changes we are seeing means that some lifetime mortgages are looking much more like mainstream options.
I noticed a zero ERC product from more2life, plus lower ERCs on other products, interest reward type products from the likes of Standard Life Home Finance, where the more a borrower pays in interest the better rate they get, etc.
We get all of that, and as an advisory firm and network we have been very active in the later life lending space and so this opinion doesn’t come from a point of view – that some mainstream advisers may hold – of never wanting to be involved in this space.
But, what I would say to those who are - quite rightly – advocating for more advisers to ensure they can offer all mortgage options to all older homeowners, is to also look at the rates available.
The reason being is that I often read articles from later life lending specialists/commentators which argue this is not a price-driven sector. I would argue it absolutely is, and the proof of that is in the level of business that has been written, for example, in lifetime mortgages over the last couple of years.
Rates have been, shall we say, challenging, and the result has been to make it increasingly difficult to make a recommendation for such a product. Now, just recently, rates have begun to drift back down and we have already seen an increase in business activity because of that.
So, the evidence would suggest that rates absolutely do matter. And if there is a concerted, and absolutely worthy, effort to merge the mainstream with the later life lending space, and to get more advisers active in it, then it is going to need to be matched by an effort to get pricing down, so that it has a more mainstream feel to it.
Now, of course the way such products tend to be funded is different, based off gilts and not swaps, and there are other considerations as well, but if later life lending stakeholders want to see a marked increase in this space, then it’s not just criteria that has to look like the mainstream, it’s the pricing as well.
Overall, we should all be cognisant of just how much rate talk breaks through. ‘What’s the best rate?’ will always remain a go-to question for clients and it’s always going to need answering by advisers. Those who want to see their sector improve in terms of activity and engagement should always be acutely aware of just how much a competitively-priced product can do for them and the client.
