As we look forward to a rare Bank Holiday Friday (not that days have a huge amount of meaning at present), we could also be looking ahead to a period of the lowest mortgage rates ever.
I was very kindly invited into a couple of Zoom meetings last week with senior people in two of the largest lenders in the UK. As some of what was discussed was sensitive, I won’t mention who they were, but the important thing was the themes that came out of both calls.
The two stand out points were:
Lenders are almost entirely reliant upon brokers for mortgage lending at present
One estimate was that 99% of new lending is coming via brokers.
Coming into lock-down, brokers accounted for over 80% of most banks new lending, so that isn’t a huge surprise, but what was encouraging (from my perspective anyway) was that the expectation will be that it will stay in the 90% bracket for a very long time indeed.
Even when lock-down is relaxed, most ‘head office’ set ups, or offices with large floors of people may only be able to have 25-30% of their workforce in at one time, meaning capacity within the majority of most banks will be severely hampered for much of the rest of the year depending on which news feed you plug into.
So save yourself a lot of time and headaches, and pick up with a broker, not your bank, when you need any form of help on your mortgage.
Mortgages Rate are low and will stay very low, for a long time
If you regularly read this update, you will be familiar with the disparity between market funding rates and mortgage rates at present, as per the graph below.
Some lenders can, and will, lower rates at some stage but are not doing so at present as they could not cope with the level of business that would generate (see above point).
Lenders are playing chicken with each other at present on who is cheapest. As once in the hot seat, they pull their products to stem the flow of business to let the next guy carry the load. Hence fuelling higher mortgage rates than we would expect to see with where funding costs are.
So I would not be surprised at all if at least one lender offer a sub 1% deal before the year is out. Also, even if the UK Base rate goes up later in the year, and funding rates go up, you won’t necessarily see mortgage rates go up as there is so much headroom there at present.
I am talking to lots of clients that want to take a 5 year deal as rates are so low.
I get that, but why? 5 year deals are more expensive and if no-one is expecting mortgage rates to rise for well over a year (which I think will turn into 5 or 10 years if you look at how much borrowing most Govts are taking on right now. The only way they can ever pay that back will be in a low interest rate environment until the debts are cleared, hence the 5-10 year time-frame I suggest) why hedge against something that isn’t likely to happen? I think we are in a period of seeing lower rates, for longer, than we saw off the back of 2008 as this time, funding isn’t the issue.
In the mortgage world at least, we are likely to see the biggest growth in broker firms that we have ever seen, in a period of the lowest rates we are ever likely to see (and I hope that is the case, as interest rates only rise when the economy is improving).
So while things are very strange now, it looks like we have an exciting time ahead of us in a post COVID-19 world. With so much damage being done to life, businesses and society, I am extremely thankful to be in an area that will come out of this stronger, so we can carry on doing what we do best, which is – saving our clients as much money as possible, and getting them debt free faster.