Lenders will have to look beyond the ‘vanilla’ borrower in a post-Covid world

We certainly would not have thought we’d be looking at what is akin to a mortgage ‘price war’ of sorts albeit one being fought at very low LTVs – isn’t it always? – and one which, certainly when it comes to below 1% headline-grabbing rates, might not be fought for very long at all.

But this is undoubtedly a sign of progress and, even with Bank Base Rate still at 0.1%, you don’t get too many rates of 0.99% or 0.95% or 0.9 anything. Fees tend to be hefty in this space but there will of course be clients for whom this is suitable and advisers will be able to sort the wheat from the chaff in terms of which deal is more window dressing than fully stocked up in the shop.

It does however show just how ultra-competitive the mortgage market is at present and that lenders – specifically those active in the mainstream residential space – are looking for any competitive ‘leg up’ in order to get deals to the top of sourcing systems and to hopefully secure the business volumes they want.

Building societies in particular tend to fish in these waters more regularly than the high-street banks, often because they can’t truly compete at the rates offered in the higher LTV spaces. It’s no surprise to see the likes of Hinckley & Rugby here and I suspect others will follow.

Just how long this dip below 1% will last is however a moot point because, even thought there doesn’t tend to be much of a coloration between BBR and product rates, at some point you have to believe that the Monetary Policy Committee (MPC) will have to make its move.

I read a recent piece by Bob Young of Fleet Mortgages which talked about the current BBR level being a ‘life support rate’ – one which it would be in everyone’s interests to get off sooner rather than later, and he expressed the view of some economists who argued that rising house prices, if they continue in the same vein, may need to be addressed by a higher BBR.

At what point that might occur is up for debate but if the post-pandemic economic landing is – as increasingly expected – likely to be a lot softer than initially feared, then one would presume the MPC would want to ease rates back towards where they were set pre-Covid. Doubly so, if the discrepancy between housing demand and supply remains as marked as it has been in recent times.

Of course, going back to the big sparkly rates on offer, they can be good at generating interest but they are unlikely to be available to the vast majority of clients and deviate even slightly from the very tight affordability and income criteria they come with, and there is no chance.

However, the further good news is that advisers have access to a much broader range of product options now than certainly at any time in the last 12 months. Who might have thought advisers would have a pretty decent selection of 95% LTV products to choose from back in February this year, let alone last April? Although it of course required Government intervention to get there.

What this does perhaps tell us however is that lenders can go into areas now which we might have thought ‘off limits’, and certain types of borrowers who have seemed underserved for far too long, might benefit from a highly-competitive marketplace where lenders will have to look beyond the ‘vanilla’ borrower in order to secure the volume and the margin they crave.

Of course, I’m completely aware that 60% LTV below 1% mortgages are very far from that, but it’s a sign that lenders may have to move where they have feared to tread in recent years, and again that should hopefully open the door to far more product choice right across the piece.

Advisers retain a powerful position in all of this, particularly for those borrowers who are new, or relatively new, to this market and are flying blind when it comes to their mortgage needs and those of all other kinds of products/services. Whatever that need, and however the client finds their way to you, make sure you’re delivering as many of those as possible – given the complexity of the market and the purchase/remortgage process, why wouldn’t you?