With competition returning to the mortgage market, client conversations are finally starting to feel different
A run of rate reductions from some of the UK's biggest mortgage lenders is beginning to change the tone of client conversations, with brokers welcoming a shift in market sentiment after a difficult autumn of rising prices.
HSBC and NatWest both announced cuts this week, following similar moves from Santander, Halifax and Yorkshire Building Society the week prior. The cluster of reductions comes after a turbulent September in which swap rates climbed and inflation hit 3.1%, pushing several major lenders to raise prices rather than cut them.
Rhys Edwards (pictured top), head of mortgages at Stratton Wealth Management, said the impact on day-to-day broker work has been immediate.
"It makes things feel a little bit better in the industry," he told Mortgage Introducer. "With rates going up and up, it does feel very much doom and gloom, and clients feel the same. When you speak to clients, it's 'oh no, rates are going up, hand me the damage’. It's nice to say rates are reducing. It almost helps the process a little bit when speaking to new clients. It's just a nicer conversation in general."
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Why are lenders moving now?
What makes the timing notable is that lenders have pressed ahead with reductions even as their own funding costs have moved in the opposite direction. Five-year swap rates rose from 4.619% to 4.723% between mid-September and 13 October, while two-year swaps climbed from 4.545% to 4.641% over the same period.
Edwards said the driver is competition rather than cost relief, and that the pattern of bigger lenders moving first is well established.
"You'll generally see the bigger lenders go first and then it washes through the marketplace," he said. "You'll see other lenders starting to reduce to remain competitive. Even some of the smaller building societies and adverse lenders will see rate cuts coming across – everybody moves generally when rates come down."
He added that the speed of lender response has improved markedly in recent years. "They're certainly reacting a lot quicker these days to the wholesale market reducing. You'd be watching swap rates starting to come down a few days before and thinking, hang on. There has to be a confidence trend that rates are coming down before they decide to reduce their new money pricing, but lenders have got a lot better at that."
Remortgage borrowers in focus
Edwards singled out the remortgage market as particularly significant in the current environment, noting that overall lending volumes remain below levels seen in previous years and that remortgage business offers lenders a faster route to deploying money.
"It's quicker in the industry generally because you haven't got the purchase process to go through," he said. "It's a good way for banks to lend more. It will help stimulate some more movement – money changing hands, mortgages getting paid off, new money starting. It's just as important as new borrowing."
HSBC's latest round of cuts extended across remortgage products from 60% to 90% loan-to-value (LTV), while NatWest's five-year remortgage deals at 85% and 90% LTV fell by up to 0.17 percentage points, bringing a five-year fixed rate at 90% LTV down to 5.39% and five-year fixed rates at 60% LTV from 4.95%.
Should borrowers lock in now?
With rates falling, some borrowers are choosing to wait in the hope of securing something cheaper still. Edwards said a good broker should take that uncertainty off the table entirely.
"Brokers should be monitoring the market and giving the client the confidence," he said. "Let's say we secured a deal today, we will still continue to monitor the market during the process of the application and even after the offer has gone through. The rate we've got you is secure. That rate will not go up. But if rates improve, we can still go and change those rates."
On remortgage cases specifically, he outlined a strategy of opening an application up to six months ahead of a deal end date, locking in a product early while continuing to review as the lender's retention window opens. "If rates take a U-turn, the sooner you get that application in and secure a product, the better. If there's improvement, we can improve. But best news, if things get a little bit worse, we've got that rate secured."
He noted that lender systems have become considerably more accommodating on mid-process rate switches than they were before the Covid-19 pandemic. "It used to be quite hesitant to allow you to change the rate on a product deal. Certainly, during Covid, that really changed in the broker market, and the consumer has benefited from that."
What the market needs heading into Q4
With the Autumn Budget and the next Monetary Policy Committee decision both approaching, Edwards is cautious about what either will deliver. "It's very much wait and see," he said. "The Bank of England, it's really hard to say. It depends on the new inflationary figures. But another hold on the base rate would be beneficial for the mortgage market."
His broader read is that lenders have done most of what they can in the current climate. The constraints holding the market back, he argues, sit elsewhere – in geopolitical pressure on fuel costs, a stubbornly high cost of living, and a property supply picture that remains tight. Estate agents he has spoken to recently flagged that fewer homes are coming to market than demand would justify.
"There's not much more lenders could do about rates at this stage," Edwards said. "But if they keep listening to brokers, I think that goes a long way."
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