Expert believes brokers must become more creative
It could be considered organised chaos in the mortgage market currently as lenders respond to the now monthly increases to the base rate.
While the base rate is not linked directly to fixed term deal pricing, Jo Breeden (pictured), managing director of Crystal Specialist Finance, said it might as well be in today’s economy.
As long as inflation did not respond favourably to base rate rises , as fast as was hoped, financial markets would continue to respond negatively and gilts would rise further, Breeden declared.
Mortgage Introducer discussed with him how the mortgage market was coping in the current climate and what creative solutions brokers could offer customers.
Challenges
With current market conditions producing challenges for lenders, Breeden said it was easy to understand why some continued to pull fixed term products with little or no notice, as well as repricing upwards.
“In turn, this is creating chaos for mortgage brokers and distributors, who are trying to place mortgages for their clients,” he said.
Breeden reasoned that pipelines were being destroyed overnight as lending criteria was no longer met; affordability, ICRs and stress tests were no longer passed, and the whole financing process had to restart.
The bad news, Breeden said, was that these conditions would not end this year. While inflation would start to fall in the coming months, it would not be at the Bank of England’s forecast, and so the base rate would continue to rise.
“Once we get into the realms of a base rate over 5.5%, we are in automatic recession territory and then inflation will fall sharply; 6% is a distinct possibility,” he said.
As Robin Day put to John Major in 1992, ‘some commentators do say that any fool can get inflation down if you are prepared to lay the economy on its back.’
The Chancellor of the Exchequer, Breeden added, had said several times that if recession curbed inflation, then so be it.
“That is where I believe we are headed, recession to kill inflation, recession to reduce interest rates; it feels like an inevitable reset as current policy is not working and will not until that tipping point is reached,” Breeden said.
Finding the best outcome
So, where did that leave mortgage advisers who were trying to find the best outcomes for their clients?
Breeden said they firstly needed to have a good understanding of what had caused this situation so that they could explain it plainly to their clients.
This was especially important, Breeden said, for those clients coming off ultra-low interest rates, who would struggle to understand the recent changes in the market.
“It is not the client’s fault, the brokers or the lenders; where you want to point a finger, or a fist, I will leave to your political persuasion,” he said.
Many clients would still want the certainty of a fixed term, and so Breeden urged brokers to get the documentation that lenders wanted right first time and as soon as possible.
“Toing and froing between broker, client and lender simply causes delays, that in the current market, can lead to clients missing out on the best deals available; if digital systems are accessible, I would also urge brokers to use them,” Breeden added.
Thinking creatively
Breeden believed brokers needed to think more creatively about the options they were discussing with their clients.
“I have been banging the drum about bridging finance for some time given the market’s stability, flexibility and competitive nature,” he said.
Since the initial chaos of the mini-budget, Breeden said he had seen one small rise in bridging rates, with another expected in response to the last base rate rise.
However, what he had seen in recent months was consistency in bridging pricing, and availability, while fixed terms rose.
The differential between the two, Breeden said, was becoming almost negligible, particularly in the buy-to-let and commercial markets.
“Bridging also offers a whole range of other advantages baked into the price, and there are three features that are pertinent,” he said.
Firstly, Breeden said the speed of completion; clients could secure deals in days which, he added, offered a security of sorts in our current market.
Secondly, Breeden said, lenders looked at the value of the property, and were not overly concerned by clients’ credit histories or terms of employment.
“Many clients will have missed payments or changed their income streams during the pandemic, and this will be impacting their applications as they now look to remortgage or move,” he said.
Lastly, Breeden said bridging was incredibly flexible and could be exited at any time without penalty.
At Crystal Specialist Finance, Breeden had seen an increasing number of brokers using bridging finance to get their deals done.
“Bridging lending is up 36% year-on-year and in a typical week, over 30% of our enquiries are for bridging; last year, we would usually see around 20% of our weekly enquires be for bridging,” he said.
What creative solutions do you believe brokers should explore for their clients given current market conditions? Let us know in the comment section below.
