First published by Best Advice
Many of the housing and mortgage market headlines have been focused on purchase activity throughout the second half of 2020, roared on by pent-up demand, the stamp duty holiday deadline looming, and consumers’ desire to live elsewhere.
But the likelihood is that in the months ahead, the bread and butter of an adviser’s business will return to existing customers – and for some is already doing so. The recent CACI data suggests there are over £33bn in potential product maturities in December alone, with a further £250bn available in 2021. The opportunity is very salient and clear.
Plus, of course, with the timings and process for purchase business being so much more protracted than in prior years, the allure of a swifter transaction time for refinancing cases will be self-evident.
Existing clients are, of course, perhaps the most important source of income for most brokers, but – that being the case – competition for remortgage business is as tight as it has ever been. It will not need me to highlight that some lenders are targeting existing borrowers like never before, often making contact four to six months in advance of maturity dates in order to tempt them into an online product transfer and, seemingly, to keep the original adviser out of the picture.
That strategy isn’t new but requires response on the adviser’s part in order to head off this threat. Your client communication has to be spot on throughout the entire mortgage term, not just a few weeks before a product end date. The best brokers give the client every reason to contact them even upon receiving their lender product transfer offer, rather than simply following the lender’s call to action, which may well result in you never doing business with that client again.
One of those key messages has to be around the potential consumer detriment resulting from remortgage inertia. Barclays’ SVR is 3.74%, Santander’s is 4.34% and the vast majority of UK lenders are priced between 3.5% and 5%. Slipping onto these rates might be good news for the restoration of lender margins but clearly not brilliant for the client and not for the adviser who has missed out on the remortgage opportunity. In fairness, many lenders do tend to promote a product transfer alternative to SVR.
Clearly, product pricing has increased throughout 2020 – Moneyfacts data suggests average fixed-rate deals (with a fee) have increased by 0.51% between July and November, while those without a fee rose by 0.46% to 2.74% over the same period. It doesn’t take a genius to work out that these are still significantly below the SVRs of every lender, and for a large number of clients they would be looking at rates much closer to 2%. That’s a significant saving on the SVR, even if they may end up paying slightly more than their previous deal.
Given these pricing differentials, some pundits have levelled another accusation at lenders which suggests that some have been steadily and deliberately increasing margins over the course of the last few months – seizing an opportunity when demand is rife. That’s business – but taken too far, some say it could ultimately result in attention from the regulator or, more likely, cause some negative reputation with intermediaries and consumers.
On the whole, I prefer to look at market pricing in the context of greater product choice, and each individual lender has to make its own decision about the margin it considers reasonable in order to sustain its offering.
As the figures show, the relative cost of mortgages has risen in the second half of 2020, but right now we have a very different economic environment, compared to the start of the year. Rates – in historical terms – are still exceptionally low and they are clearly much lower than reverting to SVR.
In terms of what advisers are still able to offer both their remortgage, product transfer and purchase clients, I think we have to recognise the importance of that consumer choice, even if pricing hikes are unwelcome.
With consumer demand for mortgages likely to be extremely high in the first quarter of 2021 and reasonably sustainable throughout next year, those of us immersed in the intermediary market have a lot to be thankful for.
Rob Clifford is Chief Executive of Stonebridge