Adviser knowledge is key as rates rapidly change, expert suggests
In today’s rapidly-changing rate environment, mortgage advisers need to be more financially literate than ever before, believes broker Richard Campo.
In the past 24 hours, Barclays and NatWest have raised fixed rates above 4%, and last night Virgin Money increased selected fixed rates too. Conversely, buy-to-let lender Landbay has today made reductions of up to 0.20% on its fixed range products.
Campo (pictured), head of growth at mortgage and insurance practice Heron Financial, believes brokers really need to be on top of their game currently to clarify things for potentially confused clients.
“I have a lot of empathy for clients right now,” he told Mortgage Introducer. “Unless you are a geek like me, or work in financial markets, it is hard to comprehend how the Bank of England can cut rates but yet fixed rates are going up.
“You have to be more financially literate than ever. If you don’t understand how money markets work, you can’t advise your clients correctly. You are just another salesperson flogging your client a two- or a five-year deal, or worse still, order taking what they want.”
He added: “Advice should always be down to the clients’ specific circumstances, but now more than ever, you need to hold a default position on what you think the best type of product to take is, then work back based on the client you are dealing with and their plans/motivations for the future.”
How difficult is it to predict market trends?
Brokers are in essence having to act like industry soothsayers, believes Campo, as they navigate the ups and downs of multiple rate changes.
“Money markets move all the time as we are effectively trying to predict the future, which no-one has ever got right yet,” he noted. “I have tracked this for many, many years. At a time when the Bank of England base rate has barely moved, money markets have moved up and down quite a bit in that time, purely down to expectations changing by what is happening in the here and now. It is crystal ball work of the highest order. Being a broker is increasingly a fortune teller as we have to spot the gaps of when markets move, where the opportunity lies and act accordingly.”
Read more: Budget fallout hits mortgages, as lenders increase rates
What is causing mortgage rate rises?
Campo points out that, interestingly, fixed rates were cheaper in January than they were in the last month – in spite of the Bank base rate cuts. It is due to the forward-looking expectation of where the base rate is going, he suggests, rather than being linked to the actual moves from the Bank of England currently.
“The Budget was absolutely a factor,” Campo observed. “It was disappointing for many reasons, not least that was it a typical spend and borrow Labour budget. So while the rhetoric was that it was about ‘invest, invest, invest’ the reality is that it was a ‘borrow, borrow, borrow’ Budget. So, as a result, the Gilt market - in particular - moved up in costs, meaning the ripple effect of financial markets means swap rates go up also.”
Furthermore, Campo believes the double whammy of key political events on both sides of the Atlantic has fed into a ski lift-like ascent in pricing.
“The current spate of rates rises was highly predictable and expected,” he observed. “As the outcomes of the UK Budget and US Election result were deemed as inflationary, the forward-looking expectation of the Base Rate - as measured by five-year SONIA swap rates - was that rates now won’t fall as quickly as predicated.”
Campo referenced that five-year swaps on September 29 were at 3.695%, whereas by November 12 they had gone up to 4.047%.
“As the vast majority of lenders fund their five-year fixed rates from this market, rate rises of around 0.35% were to be expected and that is what we have seen,” he said. “As lenders tranche their funds - as in buy in large chunks of cash to lend out so they aren’t affected by day-to-day movements in money markets - you always see this kick in four to six weeks down the line when they lend out the money they had, and buy in at the higher rate. It’s as simple as that.”
