News Review: Products


Pain now will pay off in the long term, I hope by


Rob McCoy, senior product and communications manager, PMS


Last month I finished my article with the comment “rates could stay low for even longer than the markets are currently expecting”. I do not have a crystal ball but I have received some interesting commentary recently from a number of lenders which is worth sharing but all saying basically the same thing. With the Monetary Policy Committee (MPC) leaving interest rates on hold at 0.5% and keeping the asset purchase scheme at £200bn in October the status-quo is unchanged. Whilst this was widely anticipated there are signs that the MPC is split on the outlook for inflation, which remains significantly above the Bank’s 2% target at 3.1%. The Bank’s forecast suggests that this above-target will persist until 2012. Expectations of the likely timing and pace of UK monetary policy tightening have been pushed back markedly, amid concerns over the recovery and growing expectations that the MPC might re-start its quantitative easing programme. The


unattractive


expectation of low growth and a sluggish recovery will give rise to calls for further policy intervention, which means even more quantitative easing. However the MPC is probably postponing a decision about QE2 until the November meeting, after the Government’s Spending Review on the 20 October.


(I wonder how many more voyages this QE2 will enjoy before it too will be decommissioned?) As a consequence lenders’


market data suggest that base rates are currently expected to remain at 0.5% until the end 2011, and to remain accommodative for a prolonged period thereafter. They are forecasting base rate to be 2.5% and 3.5% at the end of 2012 and 2013 respectively. With this in mind the latest


PMS research from our users has highlighted that the choice of products being sold is split 60 / 40 in favour of Tracker rates over Fixed rate deals. Most users have in the last month been recommending short term, two to three year deals, in 80% of mainstream cases. It is interesting that some lenders have been active in offering some aggressive longer term deals such as Coventry’s 3.15% 5-year fixed. Despite this clients and brokers still haven’t bought into these types of deals. I’ve said it before but some of these longer term deals do represent value for money


and it is hard not to feel like an opportunity is being missed here. With the current swap rate


forecasts, (see below) along with the expectation that base rate is only going to go one way, when these clients come off their short term deals the options for a similar deal might not look so attractive. Some pain now might pay off in the long term. In the buy-to-let deals


Official Bank Rate % 3-mth Libor% 2-yr swap% 5-yr swap% 10yr swap%


0.74 1.2 2


2.97


fixed rates have become the predominant choice with 60% of cases being recommended, but unlike mainstream products there is no appetite for recommending longer term deals. The overwhelming choice is for 2-year products but this is probably driven by the rental calculations which are applied to the pay rate to obtain the loan amount required. One user also commented


(decrease) on previous


FTB Purchase


Remortgage BTL


BTL Remortgage Total


Direct 766 812 750 41 51


2420


Source: TrigoldCrystal 08/10/10 products Increase


Term 5 years +


0-3 years 1090 -1191 3-5 years 863 477


-842 -297


14 MORTGAGE INTRODUCER NOVEMBER 2010


(decrease) on previous


(decrease) on previous


-818 -431 -297


219 111 40


Increase


month -47 -78 -90 -14 -14


Intermediary 1642 2686 2863 521 580


8292


(decrease) on previous


78 28 9


134 45 36


Increase Increase


that flat fees were preferable to percentage fees. Many regional lenders who offer buy-to-let in their portfolios do have flat fees as an option but the rates reflect this by being higher than their larger counterparties who have percentage fees. It goes without saying that clients with larger loans would prefer the flat fee to a percentage fee but comparison of the total cost to pay, which can be


Current Dec-10 Jun-11 Dec-11 0.5


FORECAST 0.5


0.8 1.2 2.2 3


0.5 0.8 1.2 2.2 2.9


0.75 1.4 2.1 2.9 3.6


done via the filters on the sourcing systems, will give a better indication as to whether a flat fee deal is better value than the percentage fee. Making full use of filters and tools at your disposal such as these is further evidence of the value you add to your clients, who will be looking for expert guidance on how to steer a safe course through these turbulent economic waters.


The product information below was the number of products as displayed on TrigoldCrystal’s prospector system and includes any broker exclusives via distributors/networks as well as direct products from those lenders who supply them to TrigoldCrystal.


(decrease) on previous


month -118 -143 -102 128 156


Total 2408 3498 3613 562 631


10712


(decrease) on previous


Fixed month Tracker month Fixed month Tracker month 853 519 385


-27 -35 -33


Source: TrigoldCrystal 08/10/10 products Increase Increase


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