What's the right way for a mortgage advisor to react in current market conditions?
What makes a good broker?
That’s a question that’s perhaps much more relevant now than it was at the beginning of the year.
House prices may have started to fall, but affordability remains out of reach for an increasing number of people due to double digit inflation, the cost-of-living crisis and decades-high interest rates (today’s 3% base interest rate was only 0.1% exactly a year ago and could climb even higher when the Monetary Policy Committee meets today, December 15).
In such a challenging market, it’s fair to ask whether borrowers are going to find the going harder.
But they’re only one part of the equation. Should borrowers also demand a better service from brokers, such as asking them how many lenders they work with before opting to employ their services, as a recent tabloid suggested?
Mortgage Introducer felt compelled to pursue that legitimate point among others, including whether brokers should charge at the point of an offer or on completion. Experts were also asked whether today’s expected rate hike will make it harder for lenders and brokers to respond adequately and offer the right deals.
This is what they said:
Vikki Jefferies, proposition director at PRIMIS:
“While the majority of broker input necessary is in the pre-offer stage of the lending process, we have seen a spread of brokers charging on completion, up front, or as a combination of the two - with some even reducing or stopping fees all together. With this in mind, it is important that the work done by brokers, particularly in a more complex market, is recognised, so that they can continue to provide the best service as possible to consumers.”
“Since the mini budget, which has accelerated the rise in inflation and borrowing costs, there has definitely been a focus on securing and confirming rates quickly, driven by the desire to give customers confidence that they are getting the best deal possible now and in the long-term.
“Following a period of economic uncertainty, swap rates are now stable and some lenders will already have priced in any potential impact of the Bank of England decision on the 15th. While there may be some marginal increases in the cost of some products, these will be nothing like we have seen before.”
Jeni Browne, director of Mortgages for Business:
“The current market conditions are making it harder to find the right mortgage product. The main struggle is making affordability calculations work now that interest rates are so much higher than we’re used to. However, now that the market has calmed down, products are available that will work for most circumstances.
“It is absolutely advisable for a client to ask a broker how many lenders they are working with before opting to employ their services. It’s also important to know your broker is independent to ensure you’re really getting the most suitable product available from the whole market.
“The bulk of a broker’s work is the research and time spent to get (the customer) a mortgage offer, so charging at the point of offer is appropriate. Depending on the complexity of the case, they may spend hours researching, negotiating and working with lenders to find you a solution. It’s not uncommon for cases with an offer not to reach completion (borrowers change their minds, other issues occur). In this circumstance, if the customer pays only at completion, the broker gets no financial remuneration for their time and knowledge spent.”
In response to whether brokers felt unduly under pressure to offer a mortgage deal as quickly as possible:
“It depends on the circumstances. In the recent market, where rates were here one day and gone the next, brokers were under tremendous pressure to secure offers and save their clients significant amounts of money. Under normal circumstances, we still prefer to get you a mortgage offer quickly because it helps keep the case on track, and no-one likes that kind of life admin hanging over them!”
In response to a possible interest rate hike:
“We’re likely to see a slight adjustment in pricing from those lenders closely connected with BBR. But SWAP rates have settled down, so it’s likely that rates won’t change much this time.”
Read more: Will 2023 see a spike in missed mortgage payments?
Magnus Duke Dadzie, executive director at TFC:
“I completely agree that the current market conditions are making it harder to find the right mortgage product.
“It is advisable for a client to ask a broker how many lenders they are working with before opting to employ their services. Some brokers are limited to the type of mortgage advice they can offer, so it is important to ensure the client receives the best product available. Brokers also need to ensure they are not misleading clients by saying they offer whole of market products as not all lenders offer their products through brokers. A typical example is First Direct who only deal directly with customers.
“Brokers should charge at the point of an offer as all the hard work would have been carried out prior to, and at, point of offer.
“Getting a mortgage offer is not the issue if it is not the right product for the client. It is important that the broker explains to the client that the quickest lender may not necessarily be offering the best product for them. It really is a very tricky situation and brokers must lay their cards on the table as to how quickly they can assist the client in obtaining the best product within a reasonable time scale. Ultimately, if things go wrong further down the line, the broker will have themselves to blame.”
Dave Jackson, business development manager at lender TAB:
“If the Bank of England raises the base interest rate again on December 15, I don’t think we’ll see any impact until the new year, but lenders will need to price accordingly and remain competitive. Otherwise, they’ll price themselves out of the business. I think clients will take a view on whether they go ahead with some projects because of the cost of funds.”
Sam Morris, lending associate at TAB:
“The service a broker can provide their client is only as good as the service the lender is providing the broker. If rates and the costs of borrowing go up, there needs to at least be a certainty that the banks and lenders can still lend.
“While speed and certainty are often more important to our borrowers than the cost, no-one wants to price themselves out of the market.
“Commercial lenders should be adapting, pre-increase, to mitigate the risk of moving the goalposts on loans, or not being able to compete in the ever-changing environment.”
Lyn Webb, director Mortgage Saving Experts:
“In the current economic climate finding a good mortgage broker is very important, so the client has the right to ask questions regarding the longevity of the broker or the lenders they have available to them.
“Lots of brokers will state they are whole of market, but what does this mean to a client? It’s important that when advertising your services, you state exactly what you can offer.
“Brokers who have lived through recessions and high interest rates before will be accustomed to dealing with these situations. Asking how quickly a broker can get a mortgage offer out is important, but if the broker is experienced, they will know the documentation required to speed up the process.
“Charging a broker fee is considered acceptable to customers nowadays due to the vast amount of work we have to do in the background and the level of expertise and knowledge the broker has. In our company some of our brokers charge on offer, if they know it’s going to be a challenging case, whereas others charge on completion. I don’t feel either is incorrect or better.
“With the MPC meeting next week, many people are hoping that rates do not increase, as this will not help the property market progress next year. Many brokers are already saying that they are finding work difficult at the moment and clients are unsurprisingly looking for rates that don’t exist anymore.”
