Blog

Eleventh-hour mortgage changes can be rationalised but better management needed

Bob Hunt

Bob Hunt

20 June 2022
Why don’t they just ‘price for risk’?

It’s a question that is continually asked by all and sundry when it comes to trying to understand lenders and the way they price their mortgage products. Especially so when there appears to be such a sizeable disconnect to the perceived cost of funds and the pricing.

The very simple answer to that question is, of course, that lenders do price for risk; it’s just the case that risk changes and, in certain market periods such as the one we’re experiencing right now, it can change a lot. 

It would certainly be an oversimplification of the seemingly constant changes we are seeing in pricing right now, to suggest that all types of lenders – banks, building societies, specialists, and the like – are running the same playbook.

That’s obviously not the case, because each funds in entirely different ways, each has its own unique commercial consideration around share of market versus volume, plus each has its own credit risk appetite and restriction, and each will have an overall margin it wants/needs to achieve. I could go on.

However, even with those very individualistic areas to consider and take into account, they also have to acknowledge this is a market full of competition, and even those with the best laid plans, those achieving their aims as set out above, can be driven off-course by the decisions of others. 

Hence, why lenders who will genuinely have priced for risk with their products, are at the same time having to continually consider their position within the market, and where the moves by other lenders leave them. A market where their competition is likely to number tens upon tens of lenders and (at least) hundreds of other products. 

For instance, will their current price points leave them exposed to an influx of business that they are unable to service, if their competitors move? And if this is the case, how best to manage their current position and the business they will receive, while they work out what their moves should be? And just how long will it take them to make those moves and what should be the decision process during that time period, particularly in accepting volume?

Now, I fully concur with some of the criticism that is currently being levelled at lenders around the ways and means by which they are reacting and acting, particularly in terms of the short notice periods being given to the adviser community. A couple of hours grace is never going to be enough and clearly the greater lead-in time advisers can be given, the far better it is going to be for all concerned, not least the adviser themselves and their client. 

Plus, let us not forget that some of the action required in this regard is because they have chosen to take in far too much business at the very point that their pricing leaves them exposed when others move out of their vicinity. The point I was making about how they handle those periods between making the decision to change pricing and what they will accept on the current rates.

Operationally, I don’t think it is too strong to say that some lenders can get themselves into a right mess when making these decisions. Don’t get me wrong, I know full-well that resource is currently at a premium and has been for some time, and many lenders are trying to get their resource levels up to match the service they offer with the business they are receiving.

However, again, with slightly better management of this, they can do themselves – and advisers/clients – a real favour. Again, let’s be honest, it’s not like they’ve never done this before and, while I fully appreciate this current market is perhaps more ‘fluid’ than others, the fact that rates are changed and competitors shift quickly, should not be a surprise to anyone who has spent very long in our market.

We are not breaking new ground here. This is a fact of mortgage life, and all stakeholders, but particularly lenders, should be able to draw upon their experience to find ways to make the process as smooth as possible. To ensure advisers have enough time to place business and they do not swamp themselves with too much. 

Advisers (and distributors) recognise the challenge to be faced but we have been here before. Let’s act like we remember.

 

Reading this blog counts towards your CPD!

Click here to add this session to your Paradigm CPD log.


21 December 2023

PTs remain a big part of the marketplace


21 December 2023

Not all wine and roses but outlook is better


15 December 2023

Artificial Intelligence: A vision for the future


12 December 2023

Reflecting on 2023


11 December 2023

Mental Health Matters: Menopause


8 December 2023

Looking ahead: Reasons to be cheerful about the market in 2023


17 November 2023

Why TikTok could be a winning tactic for brokers


27 October 2023

The Aggregator Market - Friend or Foe?


25 October 2023

Don’t let Charter support remove advice from the mortgage process


3 October 2023

How to strengthen your defences against cyber threats


29 September 2023

White Dragon Communications


8 September 2023

Advisers deserve recognition for keeping borrowers on lender books


23 August 2023

The good, the bad & the ugly of using Artificial Intelligence (AI)


14 August 2023

Accessibility in your marketing


14 August 2023

Choosing the right social media platform for you


7 August 2023

Staying safe online


7 August 2023

Search engine optimisation: the process of making your site better for search engines. 


4 August 2023

The blasé attitude towards sudden mortgage withdrawals is not good enough


1 August 2023

Is your content compliant?


10 July 2023

The argument for higher proc fees for better quality business is undeniable


22 June 2023

Product withdrawal timescales and how brokers can adapt


1 June 2023

We're not in mini-Budget territory yet!


24 May 2023

Skipton’s 100 per cent mortgage should be replicated, not feared


30 April 2023

Protection And Mortgage Fair Value Assessments – What Is My Actual Responsibility?


6 April 2023

Lenders will compete on mortgage rates, but don’t expect a price war


27 March 2023

Vulnerable Customers and Economic Abuse


10 March 2023

Tell borrowers to stop waiting for mortgage rates to fall


7 March 2023

Mixed messages from Bank of England boss ahead of MPC meeting


6 March 2023

Take the Consumer Duty seriously when it comes to protection


Paradigm

THIS SITE IS FOR PROFESSIONAL INTERMEDIARY USE ONLY AND NOT FOR USE BY THE GENERAL PUBLIC.

APCC Member
Paradigm Consulting is a Member of the Association of Professional Compliance Consultants

Paradigm Consulting is a trading name of Paradigm Partners Ltd
Office address: Paradigm Partners Ltd, Paradigm House, Brooke Court, Wilmslow, Cheshire, SK9 3ND
Paradigm Partners Ltd is registered in England and Wales. No.09902499. Registered Office: As above

Paradigm Mortgage Services LLP
Office address: 1310 Solihull Parkway, Birmingham Business Park, Birmingham B37 7YB
Registered in England and Wales. Company No: OC323403. Registered Office: Paradigm House, Brooke Court, Lower Meadow Road, Wilmslow, SK9 3ND
Paradigm Mortgage Services LLP is a Limited Liability Partnership.

Paradigm Protect is a trading name of Paradigm Mortgage Services LLP
Office address: 1310 Solihull Parkway, Birmingham Business Park, Birmingham B37 7YB
Paradigm Mortgage Services LLP is registered in England and Wales. Company No: OC323403. Registered Office: Paradigm House, Brooke Court, Lower Meadow Road, Wilmslow, SK9 3ND
Paradigm Mortgage Services LLP is a Limited Liability Partnership.