An overview of the current mortgage market

Host: Welcome to this month's edition of NFP insights. Today I've got my good friend Emma Crocker from our mortgage team here at NFP.

Emma Crocker: Hello, thank you for having me.

Host: How's life treating you Emma?

Emma Crocker: Busy

Host: I can imagine, mortgages, every time I turn the news on they're all on the telly, the news, everywhere. So it would be really good for our viewers today to kind of hear from you what's going on? We're going to cover off things for first-time buyers, we're going to look at people that are remortgaging. So yeah let's start right at the beginning then.Can you give us a bit of an update on the UK mortgage Market at the moment what's happened so far and why are rates where they are?

Emma Crocker: So we've gone through a period over the last 14 years of historically low-interest rates. Then we had September 2022, the bank of England decided to put its base rate up and it's had a bit of a knock-on effect with Lending. So the bank of England put its rate up because, external things have impacted the cost of living. We've all seen the price of gas and electricity going up following the war in Ukraine. It's meant that oil prices have gone up, we saw the cost of fuel, petrol and diesel going up. Supermarkets shopping has gone up as well.

Host: Pretty much everything

Emma Crocker: Everything has gone up and the way that the governments control that, they put the bank of England's base rate up and it's just basically to try and slow down spending a little bit. The knock-on effect of that is, the lenders decided to put their rates up. That's meant it's costing more to borrow money. Now over a series of the last few months interest rates have continued to rise and the cost of borrowing money has also gone up and it's meant for people looking to borrow money on a mortgage that what would have been perhaps more affordable has become more expensive to borrow money. I'm typically seeing people having to find an extra three four five hundred pounds per month to cover their mortgage payment.
Now whether this will continue, I've no idea, there has been talk that the bank of England might put its rates up again, when they do and if they do and by how much they do is all down to the bank of England. Whether that continues and then rent rates start to come down again, well there is speculation at the moment that the bank of England's rate might start to come down towards the end of the year and if that happens it means that potentially lending rates will come down as well.

Host: You've answered my next question there so I wont ask you that one, but I was going to ask you what the outlook for the UK mortgage Market, I suppose to the back end of 2023 going into 2024, is there anything else you want to say on that?

Emma Crocker: Potentially, lenders have forecasted that prices of property might come down as well. So the back end of 22 lenders was predicting that property prices were going to reduce by between 5 and 12 percent. Now if you take an average of around eight percent that gives you a general idea but I really think it's more regional rather than a national average. So if that happens that might mean that buying a property becomes more affordable, if that alongside with mortgage rates coming down, together it might mean that property purchases become more affordable all in all. Plus refinancing property so it's not just buying, it's about what you've got owned as well.

Host: So when you're delivering a lot of these I know you go out to see a lot of our clients and you're obviously speaking to a lot of people internally. What's the most common question you're getting asked at the moment?

Emma Crocker: Should I fix or should I go onto a variable mortgage rate, that's probably the most popular question and I think the answer to that is really down to the individual and how they feel about their own finances. So if you're somebody who is quite keen to be able to budget, to know exactly what you've got going out of your bank account each month, then fixing your mortgage is absolutely going to be the right thing for you. Taking a rate that's going to move up and down isn't going to sit well. Whereas if you're somebody who thinks actually there might be a little bit of room here where interest rates could go down, I understand there's a little bit of a risk that interest rates could also go up. Then maybe going on to a variable rate might be the right option for somebody, but it's down to individual choice.

Host: How long are people typically fixing for?

Emma Crocker: It really depends again on the individual. Traditionally the shorter term fixed rates were better value for money, the short-term fixed rates were cheaper to borrow money, as it stands at the moment. If you took a five or a ten year fixed rate you're being offered better terms than if you potentially took a two or three year product. But it goes back down to what's right for the individual.

Host: Personal circumstances?

Emma Crocker: Yes

Host: I suppose people can be quite short-sighted? because this is a property is a long term?

Emma Crocker: You don't buy a property thinking you're going to sell it within a couple of months. You buy a property with the intention of potentially staying there for years. It might be a two or three years but it might be 10 or 20 years. So when you're looking at financing a property you've got to think about the long-term goal here not just the short-term. So sometimes you know people will talk to me about taking a short-term fixed rate because they don't want to be tied in for something for very long. They want flexibility and then those people are coming back to me not that long ago having seen them and they're saying Emma we wish we'd listen to you because we could have secured a better rate a couple of years ago for longer and we're in a position now where we've lost out. I suppose again it's down to the individual, but really it's a minefield but it's understanding and getting to know the individual about what's right for them.

Host: Right for them at the right time. So yeah just leading on to my next question. So for people that are fixed and say if you're on a five five year fix at the moment and they're two years out a year out is there an ideal time when they should start looking at or speaking to a mortgage advisor about, when to start the work I'm looking at the next rate that they're going to secure?

Emma Crocker: I'm having people contact me during their current fixed-rate deal. So I don't know a couple of years before their current deal.

Host: Really that far out?

Emma Crocker: Yeah, people are talking to me and there are situations where people are choosing to pay an early exit penalty so that they can secure a rate now before rates continue to rise any further that said the ideal time typically to start looking at a remortgage is six to seven months before the current deal expires. It gives you an opportunity to really look at the mortgage options that you have, it's giving you an opportunity to sort out if there are any things we need to sort like, change in addresses, like getting payslips organised and paying off a little bit of debt. Anything like that, it gives you a chance to get those bits organised. But it also and the most important thing it gives you the opportunity to secure a rate up to six months before your deal finishes. So if interest rates continue to rise it means that you can secure rate six months early if they come down there's no reason why we can't sit down and have a look at that mortgage rate again nearer to the expiry of your current deal, but it gives you the best of both.

Host: If you're not using a mortgage broker, typically is your kind of insure your lender just writing out to you on a piece of paper saying we're gonna you rate sending we're going to switch you over onto this rate?

Emma Crocker: Normally a lender will contact you around three months before your deal is due to end, inviting you to have a look at their own product range.

Host: But only their products?

Emma Crocker: Absolutely and it's not always the right thing to do. So go into your existing lender absolutely is a good place to start because it's good to see what they're offering. But they're not going to tell you that the next lender is actually potentially offering you a better setup.

Host: So that there's one value of using a mortgage broker.

Emma Crocker: Absolutely, the other thing is that by using a broker we often get better mortgage rates than you would be offered by approaching your lender directly.

Host: Why is that? is that just economies of scale? or trusted relationships?

Emma Crocker: It's approximately 75 to 80 percent of a lender's mortgage business is submitted through a broker. So we're doing the lender's job for them, we're checking your affordability, we're checking criteria, we're checking that it meets the lenders lending proposition before we actually get it submitted, and because we're doing all of that first the lender when they get the application is ticked.

Host: It's all done?

Emma Crocker: Absolutely and because of that they're able to give brokers better interest rates as a way of saying almost thank you for giving you giving them the mortgage.

Host: How much work is involved in doing that exploratory work on interest rates?

Emma Crocker: Well right now it's a massive job, don't ever underestimate how much work is involved with organizing a mortgage. We have to check that it's affordable given what's happened with the cost of living. What might have been affordable previously might not be affordable now, so things like the cost of gas and electric is filtered through to the office of national statistics that data is then pulled through into a lender's affordability calculation so whereas a lender might have offered you x amount six months ago, now they might be saying well actually we're only going to offer you this much because we recognise that you've still got to pay for all these other bits and pieces in relation to running this property.
So checking affordability is key, then checking the lender's criteria to make sure that you meet that lenders criteria and then of course checking rates so it's not always looking at the interest rate that a lender is offering, it's checking all the other bits that go alongside with it now. These lenders are changing rates and criteria all the way up all while it's a sliding scale all the time.
So I use the analogy that you're a little bit like a jigsaw puzzle, when I first start talking to a person I don't really know what we're going to be doing for them until I start putting a few pieces together. Once I start putting a few pieces together the picture becomes clearer and I know what we're going to end up with and I know what the picture is going to look like.

Host: When you run your analysis on your computer and it comes up with a rate how many lenders are on that screen?

Emma Crocker: I have access to approximately 120 lenders.

Host: So that's something that just literally, someone like me I can't really do that on my own. Unless I've got loads of time and I know exactly what I'm looking for?

Emma Crocker: Yeah, so I'm looking at lending from almost a bird's eye view, whereas you going to talk to a lender individually. Well lender a is going to spend an hour with you and do this and lender B is going to spend another hour with you and do it slightly differently lender C and so it continues. Whereas I'm looking at one set of data and I'm looking at all the lending criteria and saying actually Mr customer based on what you've told me I think lender X is going to be the best one for you. And that's down to my experience and the wealth of knowledge that I've gained over the years that I've been working as a mortgage advisor.

Host: I like that answer really good. Remortgaging right so people with a mortgage, I mean looking at switching or moving house. They come into the end of their term, when should they start looking at reviewing their options and how can you help them?

Emma Crocker: So remortgaging I'd say six to seven months before, somebody moving house, they can move house anytime. So if somebody's part way through a mortgage product and they're looking to move house, we can do something called porting. So it means if we take the existing mortgage with you from where you're living to your new property. Now if at the time that you're looking to borrow a little more money to be able to purchase your new property that's potentially available, we look at all the options and decide whether sticking with your existing lender is going to be the right proposition?

Host: So that's borrowing money with your current lender just attaching it to the current mortgage?

Emma Crocker: Yeah, so you end up with two mortgage accounts. You will end up with a chunk that was from your original mortgage and then you'll end up with a second mortgage account that's for the top-up that you're going to need.

Host: Even with the same lender?

Emma Crocker: The same lender, but it won't necessarily be at the same rate.

Host: Would that money leave your account at the same time?

Emma Crocker: It could do if that's what you wanted it to do. Typically most lenders will set the same direct debit data some lenders take them as two separate payments some lenders wrap it all into one big payment, it really just depends on the lender.

Host: Could you have a mortgage with one lender on your current property in the house you move into?

Emma Crocker: Not as a traditional mortgage you don't. As a traditional mortgage it's all to do with how the charge is registered on a property and most mortgage lenders want to have first charge on the property ownership. So in the event of a repossession, it means that that bank wants to be the first people paid back once the house sale goes 

Host:  as opposed to two lenders?

Emma Crocker: Yes

Host: For people that have rates reserved, because we talked in the intro we talked about that kind of six month period where you can reserve a rate. What happens if the interest rate goes up or goes down in that six month period?

Emma Crocker: So in that six month period if interest rates go up or you can be and have half a peace of mind knowing that you've managed to secure a good rate and you're okay.
If interest rates go down there's no reason why we can't sit down and have another look at that mortgage just to make sure that you are still on the right deal and in fact over the last couple of weeks actually, a few lenders that have actually reduced their rates that have put us in a position that we've been able to give the customer who's had a mortgage offer issued actually better terms with that same lender. So we've been able to change that interest rate and mean save that client some money and yesterday I only managed to save somebody £96 per month over a five-year deal.

Host: It all adds up!

Emma Crocker: Yes

Host: That six month window that's standard across the industry?

Emma Crocker: Yes six months yeah.

Host: Well is there anything else that we should be talking about today? what I mean, you speak to people on a daily basis about their mortgage situation. Is there anything else that I've missed?

Emma Crocker: I think people need to be aware and mindful of debts that they've got.

Host: So what counts as debt? what are you talking about there?

Emma Crocker: Car finance, personal loans, student loans, it could be a mobile phone on contract, it could be a credit card debt, catalog debt and all of these are taken into consideration on a lender's affordability. So if you have any of those in place, it doesn't mean to say that you can't have a mortgage but it will affect the amount that you can borrow. So if you have the opportunity of being able to clear any of those things it might mean that you can borrow more money. Equally those people with financial commitments such as child care costs, they're also factored into affordability and that can have a detrimental effect on how much you're able to borrow. So whilst you know people having families and having child care costs, it's a fact of life people will have those.

Host: You can't just stop that.

Emma Crocker: You can't just stop them, we just need to bear those in mind as well when we're looking for a mortgage. The other thing to mention is things like bank statements, make sure that you've got the correct address registered on them because we're all using internet banking these days so many people forget to update their bank details with their up-to-date address. One of the things that banks and building societies will be doing is looking at your credit history and they'll want to know if you've got a bank account registered at the wrong address why? So just make sure everything's up to date so bank statements, payslips, credit card statements.

Host: How far back are you going is it like three months with the statements? six months?

Emma Crocker: Typically a lender will ask for three months, but they can ask for far more than that if they want to. So usually it is a three-month window that they're reviewing but if there are situations might where they might want to look a little bit further back and if that's the case we need to make sure that you've got the correct address on your account at that point. So if you are looking at moving house or you have moved house just make sure that everything is up to date.

Host: I think that's it Emma

Emma Crocker: Bingo

Host: Absolutely fantastic, so if we have got any viewers on today's insights piece and they want to get in touch with you. What would you prefer them to email mortgages@nfp.co.uk or would you want them to email you directly?

Emma Crocker: That email address is absolutely fine, yeah absolutely fine.

Host: That's really good well yeah I hope you enjoyed this it's been really useful I mean I've learned loads, I hope you have too. If you do want to find out more about our mortgage proposition visit the nfp.co.uk website you'll see the mortgage tab in our wealth section so yeah hope you enjoyed it thank you very much.

Emma Crocker: Thank you