MI_22-23_mortgages.qxd 27/2/09 11:13 Page 2
22 | Mortgages
Great
expectations
Michael White, chief executive of Email
Mortgages, looks at how brokers need
to manage their clients' expectations in
the face of low – or no - interest
W
e are all currently living in the expectations of what is achievable. A full current typical products is certainly very much
a 1 per cent Base Rate factfind is always essential but never more than lower than 12 months ago.
world – I write 1 per cent now. With new mortgages still hard to come by, The problem is that all of these market
but by the time you are conveying the message to clients that a deposit of changes create confusion in the mind of the aver-
reading this it could well least 25 per cent is required, or better still, 40 per age consumer who comes to the adviser with the
be sub-1 per cent, indeed cent, is always going to be a difficult task. anticipation of far lower rates. This is forgivable
it could actually be 0 per This ability to manage the soon to be dashed given we are operating at the unprecedented level
cent. An extraordinary development and one mortgage product expectations of a client is fast of 1 per cent BBR. Moreover, we are all working
that no-one could have predicted a year ago. becoming the new found skill of a successful in a market where the best 'deals' are only avail-
The fact remains that, while the lucky few who mortgage intermediary operating in a very tough able to those who have a significant amount of
signed up to Base Rate tracker products are ben- market. But, to reiterate, once the explanations equity in their property or a hefty deposit. This
efiting from these substantial cuts, products are conveyed there are now some very decent 'fact of life' is bound to cause upset amongst
which are now coming on to the market do not mortgage rates around. those clients who may have believed they had a
come with rates anywhere near the Base Rate. In February 2008 Bank of England Base Rate very competitive/low interest rate market to
There is therefore an issue for advisers in (BBR) stood at 5.25 per cent, a typical competi- choose from.
terms of managing client's expectations with tive three-year fixed rate product was at circa-
regard to the headlines surrounding Base Rate 5.89 per cent, a typical tracker product varied No choice
and the actual mortgage product rates they are from circa-10 to 40 basis points over BBR. Move All these factors bring into sharp focus the need
likely to be offered. Some clients may be enter- forward 12 months and we have BBR at 1 per for a mortgage adviser to comprehensively 'know
taining visions of tracker rates with no interest to cent and typical trackers are now 190 to 290 basis your customer'. Unfortunately, the fact remains
pay; however, it is clear that products with this points over BBR, with a typical three-year fixed that for those requiring more than 75 per cent
type of pricing have long since exited the market. now at circa-4.2 per cent. LTV (while 90 per cent does exist for the typical
Of course it is not all doom and gloom - indeed, first-time buyer [allegedly! – Ed]) there is little
for those who can meet the lender's tightened Cost benefits choice other than a five-year fixed product at
criteria there is the opportunity to capitalise on It does not take a mathematical genius to calcu- circa-6.29 per cent. Again this is very much a
some very attractive rates. late a seven times increase at the high end and 19 reflection of the lenders' very restricted appetite
times on the more 'competitive' tracker product. for risk.
Issue As previously stated, what a difference a year In terms of an assessment of the current econ-
Therein lies, of course, the major issue for bor- makes. However, a real cost-benefit does exist omy 'gloomy' is possibly an understatement. It
rowers in today's credit crunch market – meeting and despite the lenders taking a far more conser- was recently detailed in another finance publica-
the criteria. And it is an adviser's job to not only vative approach to lending criteria and signifi- tion that credit conditions faced by companies
manage the process for clients but also manage cantly widening margins, the monthly cost for and households have tightened even further. The
March 2009 Mortgage Introducer
www.mortgageintroducer.com
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