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A new rate environment and the impossibility of advising in hindsight

Rates are naturally a constant source of debate in the mortgage industry but, perhaps now more than ever – particularly as we have moved out of a historically low-rate environment – they are front and centre when it comes to what is expected of advisers and how they interact with clients.

For instance, would we be having conversations about product withdrawal timescales or a Mortgage Charter or first-time buyer affordability or buy-to-let landlords selling up in greater numbers, were it not for the dominance of recent and significant rate movements?

In that sense, it becomes ever-important for advisers to ensure they protect themselves from the potential consequences of advising within a rapidly changing rate environment.

There’s no doubting, and some firms may already be experiencing this, that consumer dissatisfaction attributable to rate availability and rate recommendation is likely to increase, and with it, the value attributed to any complaints if subsequently deemed to be valid.

The trouble here of course is that many expressions of dissatisfaction are sometimes based on the unfair assumption advisers should be able to give advice with the benefit of hindsight.

That, of course, is impossible but it won’t necessarily prevent a complaint from being raised in months or years to come which argues that, for instance, the two-year fixed-rate recommendation accepted by a client in 2021 is now questionable advice. Clearly, an adviser cannot have foreseen that the client would later be remortgaging in an environment where product pricing is significantly more expensive than at the time of the original advice.

A point that the industry needs to consider carefully is the possibility of heightened dissatisfaction, or complaints, emanating from the impact of rate rises on personal finances: which is unlikely to suggest a case of ‘bad advice’.


No crystal ball

Clearly, advisers must ensure their record-keeping for all advice covers off every interaction and makes absolutely clear the understanding they had at the time of advice about what the client was being recommended, why they were recommended this product, and their acceptance of that advice, at the time.

One of the key elements of a strong network proposition is advice standards policy and processes plus the technology that enables it. Our proprietary technology platform, Revolution, mandates accurate record-keeping and takes the adviser through all the requirements designed to protect against foreseeable harm and the risk of consumer detriment.


A changing client-broker relationship

What is also interesting in this context, is the change in rate environment we now have and the experience of advisers operating in today’s market, and how it might shift the depth and extent of conversations with clients.

For example, I suspect many advisers when dealing with clients coming to the end of their deals, up until recently, have regularly been able to demonstrate a healthy monthly cost-saving. That is, they have always had the ability to secure clients a reduction in their monthly mortgage amount resulting from falling or static rates in a competitive environment, such that consumers could move to better-priced mortgage products.

That – unfortunately – is clearly not the case for large swathes of borrowers today, and this is a conversation which is more difficult to have, and which requires a different tone and a greater level of explanation.

We talk a lot in this sector about ‘soft skills’ and advisers are likely to need these in abundance, particularly those practitioners who have not worked in such a volatile and fast-paced rate environment before.

Let’s be honest, the market could not be more different now to what has been the prevailing one of the last decade or so, and that will take some getting used to for both advisers and clients.

One final positive to leave on however – and we should recognise that one swallow does not make a summer – but we have seen swap rates coming off highs and we’ve seen a number of lenders cutting rates in recent weeks. I’ve even seen headlines suggesting a ‘price war’ although that might be slightly fanciful.

It’s important that, given the current situation, we understand rate movements do not necessarily have to be inexorably upwards and, as a result, we could see the benefits of this in mortgage product pricing following suit, with some further reductions in the weeks and months to come: good news for our consumers.

Rob Clifford is the Chief Executive of Stonebridge

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