News Review: Products

Analysing mortgage trends from around the UK

by

Rob McCoy,

senior product and communications manager, PMS

by

John Smith

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more than eight in 10 brokers are recommending tracker products to clients in favour of other types of mortgage products such as fixed, discounted or capped. With expectations that the

Bank of england base rate will remain low for some time, it is perhaps little surprise that brokers and clients are continuing to favour tracker products. meanwhile, where fixed rates are being chosen, short-term deals are proving to be the most popular. at the end of april, and

with the general election looming, we surveyed adviser firms from around the country. the findings from our research highlighted that over 75% of the deals that advisers are recommending to their clients are tracker style products. the research also showed that whether a mainstream mortgage or buy-to-let mortgage is being arranged, tracker products are still the most popular choice.

Short-term rates dominate

the research, with more than three quarters of all mainstream fixed rates recommended being two or three-year products. over 60% of all trackers were 2-year products.

Product mix

this was also the case with the products being recommended to buy-to-let clients. Less than 20% of the

fixed rates recommended were for terms of longer than three years, and less than a quarter of tracker rates were for periods longer than two years. these findings were also corroborated by a number of our lending partners who have said that during the last month they have seen the split of products being taken as a 60/40 split in favour of trackers over fixed rates. Furthermore, by drilling

down into the finer details we can see that of the tracker deals, two and three years are the most popular, and of the fixed rates again it is two-year deals leading the way. one lender commented

that over the course of the last year they have seen a distinct change in the product mix. their experience demonstrates a shifting trend that has moved from a 60/40 split in favour of fixed rates to a 60/40 split in favour of trackers. they also saw short- term rates overtake long term in the popularity stakes, although in their case they have been marketing their three-year fixed rate products quite aggressively. Some people will suggest

that these changing trends are hardly surprising when you take into account the number of products available

Distribution channels of available mortgages

Direct from provider only Through intermediary only

Available through both channels

April 2007 590 691

1,402

Total number of mortgages 2,683

Source: Defaqto banking report: “A lack of funding”

April 2010 1,400 480 727

2,607

April 2007 22.0% 25.8% 52.3%

100.0%

April 2010 53.7% 18.4% 27.9%

100.0%

mortgage introducer JUNE 2010 13

to the market. moreover, data supplied by trigold at the beginning of may shows just how many deals are in fact short-term two and three- year deals, as opposed to the longer deals of five years or more.

Term

Fixed Tracker Rates Rates

Up to 3 years 1918 1032 3 – 5 years

840

Over 5 years 319

Total

78 343

3077 1453

until we see any change

in the Bank of england base rate, we are unlikely to see a significant uplift in the number of fixed rate deals being selected. With the expectation that interest rates will stay low for some time, trackers are likely to continue to perform well. Furthermore, with the economic upside looking very subdued for many months to come following the general election, even if we saw sterling decline in response to the uncertainty created by a hung Parliament, i believe that markets have priced this in – at least for now. another trend that we

have begun to see recently is an increase in popularity for ‘switch and fix’ or ‘drop-lock’ deals, where clients initially are on a tracker style product

Number of mortgages available

but have the flexibility to move across to a fixed rate without penalty during any early repayment charge period.

Direct

there has also been plenty of talk in the media regarding direct to customer lenders and the number of direct deals currently on the market. this recent research from defaqto shows just how many deals are available to customers buying off the high street. Whilst the figures show a significant rise in the number of mortgage deals, lenders continue to report that the percentage of their business coming from intermediaries is well over 50% and in some cases still as high as 75%. it was also interesting to see

HSBc talk about their mix and match products recently as though it was something new – sorry to disappoint but most lenders have been doing this type of thing for years. many other market commentators have also picked up on this. Whilst the idea might be new in the direct channel, i believe that this is another example of where customers benefit from seeking advice on their mortgages from intermediaries.

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