First published in Mortgage Solutions
A raft of lenders including HSBC and Platform decided a one per cent-plus mortgage rate was not low enough in June, dipping below this benchmark with a 0.99 per cent rate from the former and a 0.95 per cent from the latter available up to 60 per cent loan to value (LTV).
Certainly, it’s a big tick for innovation and reputational PR, as a major operator like HSBC works hard to stay in the mix on competitive rates which help brokers. Similarly for Platform, they may feel the name and brand recognition is worth a foray into this highly competitive low rate.
Not just for the few
Of course, there can be some moans from advisers about the launch of such headline-grabbing rates which may have a very small ‘catchment area’ in terms of borrowers or clients who qualify for them.
However, from my view, we should not underestimate the new business such ‘headlines’ can generate for advisers. Existing clients and potential new ones see these rates and this often acts as a catalyst for activity, even if they are unable to grab that particular mortgage product.
Any activity which continues to drive borrowers to consider the rates they are on, and whether they are currently overpaying on a standard variable rate (SVR), and ultimately ensures they seek the services of an adviser is no bad thing in my book.
Are we going to see an over-supply of this low-rate and low-LTV segment though? Possibly, but again a plethora of choice is good for advisers and consumer outcomes. Better to have too much to choose from than a dearth of product.
Benefits to the lender
Plus, for those who say business levels written at these rates will be negligible, we shouldn’t underestimate the importance of securing new borrowers. The bigger lenders, for instance, see redemptions and significant borrower outflows every single month, and this will increasingly happen as we see remortgage activity beginning to thrive again.
That back book has to be replenished.
Most lenders also have substantial new business targets to achieve this year. At the start of the year, if you carried out a back-of-a-fag-packet totting up of each lender’s aspirations for its own 2021 lending versus the gross UK lending available, you will have noted the combined targets were substantially greater than the market total.
Some will prosper and grab the share they need, and some will not.
The leading players won’t want to lose market share and, with strong balance sheets and their access to relatively cheap funding, they are much more able to turn up the dial through the likes of cheaper rates.
Service standards get you a little extra – especially in a very busy market – cheaper products can win you a lot.
You, the adviser, remain vitally important to mortgage lenders and their desire, perhaps need, to maintain or even grow their own market share.
This fight for quality and volume is good news for intermediaries and borrowers.
Rob Clifford is Chief Executive of Stonebridge