The recent market turmoil has unsettled many brokers.
However, it has also had an effect on consumers who are concerned about increasing interest rates, especially those who are coming to the end of a fixed rate deal and faced with the prospect of an increase in their mortgage payments.
Brokers are also faced with the prospect of helping many customers in a market that has seen a significant amount of products withdrawn from market, and are now faced with an increasing struggle on how best to advise their customers.
Consumer concerns
The last six months have been witness to a significant amount of turmoil in the financial market place, as portrayed across a significant section of the media. Both consumers and mortgage intermediaries have felt the impact, with many now looking for signs of where the market will head next.
The last year has seen the Bank of England’s Monetary Policy Committe (MPC) raise interest rates to 5.75 per cent, the highest level in almost six years. Although still historically relatively low, the rate hikes have had an effect upon the consumer, especially those who fixed at lower rates on two and three-year deals. Those consumers coming to the end of a fixed rate mortgage deal are currently looking at rates significantly higher than they are used to.
Despite this, research conducted by GE Money Home Lending (GEMHL) shows an element of growing confidence from intermediaries, with nine out of 10 believing that interest rates have already peaked at their highest level.
It seems that brokers are now more positive and hopeful when looking at the prospects of the market over the coming months and into 2008. This more positive feeling could soon pass over to consumers who are concerned and confused about their current financial prospects.
Worries and concern
The research findings confirmed that 43 per cent of consumers are worried about securing a mortgage or a remortgage due to the recent credit crunch. Many consumers have seen the impact of the Northern Rock difficulties in the media, together with widespread reports of product withdrawals and the problems in the non-conforming market in the US.
All of these compound to unnerve consumers, who are worried – not only about increasing mortgage payments, but also the fact that they may have problems securing another mortgage deal on their property at the end of their current fixed term.
It is therefore crucially important that lenders continue to work closely with brokers in the coming months to understand their customers’ needs and concerns. Both lenders and mortgage intermediaries need to ensure that a wide range of affordable products are on offer to consumers, allowing them to make informed choices in the current environment.
Broker sentiment
The research by GEMHL indicates that despite the recent turmoil in the marketplace and the knock-on effects this is likely to have on consumers, mortgage intermediaries appear to be feeling more positive about the prospects of a cut in the Bank of England Base Rate over the coming months.
Almost 90 per cent of brokers in the UK now believe that interest rates have peaked, with 43 per cent claiming that they believe that rates will fall as soon as February next year. This optimism also appears to be having an impact on the advice mortgage intermediaries are giving consumers, with discounted and tracker rates beginning to increase in popularity.
Since the beginning of August this year, fixed rates accounted for almost three-quarters of all mortgage products being recommended by intermediaries, mainly as a result of the significant number of consumers claiming to be concerned about the prospect of taking out a mortgage or remortgaging because of the recent problems in the market.
With interest rates on an upward trend and much media speculation about avoiding an increasing spiral of debt, many consumers have fixed at what could potentially be a time when interest rates have reached their current highest point.
It must be said though that fixed rate mortgages are still an excellent option for many consumers. Interest rates are at an historic low, despite the recent period of increases. For consumers who want to budget for the future and know exactly what their payments will be over the coming years and who want to step back from speculation about rises and falls in the Base Rate, fixed rates still offer peace of mind and good value.
However, when looking forward to the next three months and into 2008, the number of mortgage intermediaries advising discount and tracker products rises by an astonishing 120 per cent, while fixed rates, although still accounting for the majority of sales, are expected to fall by a third.
Reaching a peak
The trend in thinking from mortgage intermediaries clearly reflects the thoughts of many who now await a decision from the Bank of England MPC to drop interest rates in the coming months.
Although it seems a drop is not forecast immediately, the belief that rates have peaked has had a significant effect on how mortgage intermediaries are advising their customers in the current marketplace and looks set to become a trend that continues over the coming months.
The advantages of a tracker or discount mortgage are clearly visible at a time when consumers are able to follow a possible decrease in rates until an opportunity arises to opt for a fixed rate product at a more competitive future rate.
This will be very welcome news indeed to those home owners currently coming to the end of a fixed rate mortgage product who are concerned about remortgage products and longer term rates available to them.
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