With recent movements in fixed-rate mortgages and the upcoming Budget on the horizon, Will Hale, CEO of Key Advice and Air, shares his insights on what might shape the mortgage market and what advisers should focus on in the months ahead for our Friday Focus.
It can be a fool’s errand trying to predict mortgage rates, given the variety of influences at play at any point in time, but it feels as though a continued downward trend is less certain than perhaps appeared the case at the start of the year. The recent increases in two-year and five-year fixed rates should be a timely reminder to customers and advisers of the risks of trying to predict the market and, particularly for some profiles of borrowers, the need to take a longer-term view and the benefits of having certainty around costs.
Older borrowers, those over the age of 55, would be one such cohort, and the benefits of modern lifetime mortgages, which offer fixed rates for life and flexible repayment options, should be considered alongside other alternatives depending upon customer circumstances. Lifetime mortgage rates, whilst remaining much higher than those available pre the mini-Budget, have actually reduced in recent weeks as long-term gilt yields have softened. Also, with products available that offer fixed or even zero early redemption charges, a lifetime mortgage does not have to be a product for life and refinancing opportunities can be available for many if rates fall in the future.
What factors do you see influencing the market in the short to medium term?
Rachel Reeve’s Budget on 26th November will probably be the major influence on the market in the short to medium term, particularly when looking at rates in the later life lending sector. It seems clear that investors want confidence that the Chancellor is committed to getting public finances back on a level footing without compromising the broader growth agenda. This is a tricky balance to strike, and a credible plan combining spending cuts with some tax increases will likely see a positive market reaction and a further reduction in gilt yields, with lifetime mortgage rates following suit. However, as ever, the economic data reported in subsequent months will be the test as to whether the plan is working, and markets will react accordingly.
Any key guidance for brokers and advisers in light of these changes?
Don’t rely on a rate crystal ball when advising customers! Whilst minimising cost of borrowing is clearly a fundamental consideration in all mortgage advice, it is vital that advisers support customers in taking a more holistic view of how their needs and wants can be supported and an understanding of the risk of doing nothing as well as the implications of moving forward with a recommendation.
Particularly with older customers, putting decisions on hold in hope of a lower rate environment materialising can impact lifestyle goals and other aspirations. The potential for ‘buyers regret’ if tied into a long-term fixed rate and rates subsequently plummeting is a scenario that definitely warrants discussion, but this should be balanced with other considerations.
When advising customers over the age of 55 advisers should ensure they have a wide field of vision including modern lifetime mortgages which, although coming at a higher rate, allow borrowing to be managed in a flexible way and offer protections around certainty of tenure and a no negative equity guarantee. Having comprehensive conversations with customers, and if appropriate their wider family, to fully understand circumstances and objectives is crucial to choosing the right option and delivering consistently good outcomes.
