MBT Affordability Insights: 3 ideas to help your clients with rising rates

Everyone is looking at how to help borrowers who are under pressure as a result of new, much higher, rates. The government will not step in directly. It never has on this, even when things were much worse in 1989 and 1990. But it has discussed ways that lenders can help with the ‘Mortgage Charter’, and lenders are starting to talk about it now.

They have not released full details yet, but it’s all focused on help with mortgage payments – extending mortgage terms and providing short-term interest-only options. Rumours abound about a six months interest-only window, which doesn't help much if your new fixed rate is more than two, three, or five years! It’s unlikely that rates will fall substantially over the coming months. Base Rate will not come down until Inflation is consistently below the 2% target, which is not anticipated until 2025 at the earliest. Swap rates will reflect market sentiment much earlier hopefully, but the falls we would need to sort the immediate problem are very unlikely in the short term.

The other issue, of course, as far as brokers are concerned, is that any help under the Mortgage Charter is almost certainly only going to be available by clients talking to lenders direct. So, the concern will be that the help will have to coincide with a new rate chosen by the client and brokers could be cut out of the vital PT market in many cases. Lenders might wax lyrical about not doing this, but brokers are right to be sceptical. Many lenders do have form on this subject after all. It’s unlikely that the help under the Mortgage Charter is going to be that practical anyway, so how can brokers actually help their clients?

Here are 3 ideas:

1. Look at both PTs and remortgage options (where possible) as early as possible. There is a huge tranche of loans coming off rate at the end of this year, so brokers should be contacting clients now to secure rate on both two and five years. You can then decide later in the year which is going to be best. At the same you can discuss the options to keep payments as low as possible, such as extending the term and interest-only options including part/part where applicable. The part/part option is likely to pay an important part, especially as many lenders, who have minimum equity requirements, will discount the repayment element to help make it fit. It won’t suit everyone but it's a good topic of discussion and shows your client you have the options available for them. It also means that they will not need to talk to the lender direct and maintains your relationship with them, which is vital in this difficult housing market.

2. Clients could of course arrange some sort of 'arrears agreement' with their lender, but that will impact on the credit file and should be very much be a last resort.

3. They might have to sell of course, if no other option is available, but hopefully again that will be a last resort option.

The main point here is to contact clients early, research all the options available and discuss with your clients as soon as you can. Waiting for the client to contact their lender could well end up with the business being lost!