Lenders will compete on mortgage rates, but don’t expect a price warWith the first quarter of 2023 now behind us, with Spring clearly underway, and with hopefully a fair wind pushing the mortgage market, it’s possible to see a much more positive outlook for the year ahead than we might have anticipated at the tail-end of last year.
Despite having a long way to run, and despite the most recent increase to Bank Base Rate (BBR), it’s possible to see a greater degree of equilibrium between housing supply and demand, resulting in a more realistic price view of property, and product rates benefiting from lender competition, particularly in the mainstream market.
Some commentators may be looking at this and thinking, ‘This wasn’t supposed to happen’, yet again underestimating the resilience of the sector and perhaps how deeply ingrained home-ownership is in our culture.
On that note, Halifax has just announced a monthly increase in house prices by 0.8%, following a 1.2% rise in February. Another one to file in the box marked, ‘We were told this wouldn’t happen’.
Certainly, there appears much more to be positive about right now, and this is reflected in the downward shift in product pricing we are currently seeing. We all knew that lenders would have to respond in order to secure the market share they require and that has definitely been the case in recent days/weeks.
That’s particularly true for the big high-street/mainstream lending behemoths, but is also reflected in where the local and regional building societies are willing to tread, and of course we shouldn’t forget the specialist residential players who are focused on those with more complex needs and/or outside the mainstream.
For wannabe or existing borrowers perhaps reflecting (and worrying) about the continued upward trend for Bank Base Rate, the message of strong mortgage competition and downward pressure on actual mortgage product rates has to be one shouted into their ears by all of us in the industry.
As a number have pointed out, the overwhelming media focus on BBR is understandable but what we don’t want to lose sight of is the disconnect between BBR and products, and of course how swaps drive our market, often in a far more impactful way than Base Rate.
It’s why we see a large number of five-year fixes, for example, at lower LTVs - currently in the 3.8% range - and why we’ve also seen two-year fixes creeping down, albeit currently 30 basis points or so above what can be achieved for a longer five-year deal.
Without wanting to necessarily predict where we go next, it’s instructive to look at current SONIA swaps with three/five/seven/10-year rates all well below 4%, and two-year only just above. Lest we forget that BBR has just been raised to 4.25%.
That suggests to me that, at what is normally a very busy time for the housing market, lenders are unlikely to want to step back from being competitive – far from it. And, of course, given that level of competition – particularly for lower-risk, lower LTV business – it seems quite likely we’ll see rates inching down without quite entering a ‘price war’ phase.
There remains a lot of product choice available in the market, particularly for the longer-term fixes, and given that many borrowers are likely to want payment certainty at a time when other costs are rising, one wonders whether more and more lenders will be launching products into this space, with a variety of different fee options attached.
Overall, this presents opportunities for advisers, particularly in the remortgage space where many borrowers are going to be coming off deals which are priced very differently to what is currently available, and also in the purchase market where we are likely to see something of a Spring bounce.
As the sun has begun to peak through and as the nights grow longer, it’s possible to see those green mortgage shoots growing stronger and hopefully marking the start of a positive period for all stakeholders.