Broking in a period of rising interest rates

For many borrowers the cost of owning their homes could be going up hundreds of pounds per year and yet many brokers in the industry were not practicing pre the 2007 financial crisis, said Nick Morrey, sales technical director at Coreco – meaning they have never seen what it is like to be a mort-gage broker in a period of rising interest rates.

Morrey said: “If a rate was withdrawn by a lender, then chances are a similar or even cheaper rate would become available.

“Now the heat will start to build as lenders will need to increase rates to meet financial market pricing when current tranches and funding lines dry up. They are also looking to increase margins, even if by 0.05%.”

Mortgage intermediaries often account for over 80% of a lender’s business and lenders will be keen to keep them happy – but they cannot give much notice on product withdrawals or replacement products.

This is because other lenders may be able to take a competitive edge if they find out what their com-petition is about to do and, if an increase is signposted, it can cause a spike of last-minute applications resulting in service issues, outlines Morrey.

He added: “Whether this is good news or bad news for brokers often depends on how they see events unfolding around them.”

To some, the increase in rates and inflation could imply a possible collapse in the housing market or the whole economy. To others this is the start of a great opportunity.

Morrey believes that consumers want to be helped through the often complex world of mortgages, which are a product they do not really want to buy, but have to.

He goes on to explain that with prices going up almost on a daily basis a good broker can provide everything consumers need – speedy, good advice.

Brokers can sometimes go from ‘hello’ to ‘application submitted’ in a matter of hours, said Morrey, which makes them uniquely positioned to help numerous consumers get their products secured for the lowest possible cost at that moment in time.

Morrey added: “A manager of mine once said, or pinched from someone else maybe, ‘There is no such thing as luck in business. It is preparation and opportunity.’

“What he meant is that opportunities constantly arise, but are we prepared to take them when they do? Or do we dither or procrastinate and the opportunity passes us by?”

Clients usually want good advice and an efficient, smooth transaction. They want to know what the best deal is and secure it.

According to Morrey, currently clients want to know they have got what they need before that cost goes any higher.

“Advisers who are prepared and can help them through the process will be successful no matter what happens with the markets,” he added.

Morrey goes on to say that advisers will place cases quickly and get the correct documentation sub-mitted, securing the best deals for their clients and often get referrals without even asking.

He said: “So what can advisers do as rates rise? It all sounds a bit obvious perhaps, but actually doing it requires a bit of application that was maybe not needed in recent years.”

Looking to methods of improving customer service and increasing retention, Morrey said advisers should look at their client bank and contact every client even if their deal does not expire soon.

He added that it is important to make those communications personal to the clients and their individual situations.

Morrey said: “Talk to as many clients as you can rather than email, where possible – a conversation sticks in the mind more than an email quicky deleted.

“Advisers should also have a mortgage payment calculator to hand so they can give a rough estimate of what a client’s payments would be if rates went up 1%, before outlining how you might be able to minimise such an increase.”

Getting familiar with the possible rate switch dates, Morrey also said, is important, adding: “If one lender’s current range of rate switch products and further advance rates is poor, why not look to a remortgage for your client?”

In addition, Morrey outlined that an adviser must consider how long a remortgage offer is valid for as many are now up to six months not three, and that they should consider using a remortgage product with cashback rather than ‘free legals’.

Finally, Morrey said advisers need to be prepared to work out what it would cost to pull out of a cur-rent product and pay the penalties.

He said: “Some borrowers for whom cash flow is a top priority have been pulling out of fixed rates to secure a new, possibly cheaper deal even when they have two years to go – have you looked at that for your clients?”