MBT Affordability Insights: Options remain, but you need tech to find them

It’s an obvious statement that, with interest rates increasing, mortgage affordability has been adversely impacted. However, as is often the case, the full story is more complex than the headline.

Not all lenders have reacted to rate rises in the same way and the MBT Affordability platform has shown a widening range in the loan sizes available to different types of clients.

This is especially true for lower income cases, where you might expect the largest reductions would apply. However, while some lenders have slashed affordability, some continue to offer similar loan sizes to those they were offering three months ago. And some lenders, HSBC in particular, have enhanced their proposition in this area, rather than reducing it.

The health of the UK mortgage market has always depended on the wide variety of criteria from a wide variety of lenders. Look beyond the ‘Big Six’ and there have always been options for clients whose requirements need something a little different. This is still the case and affordability will play a much bigger role in how smaller lenders are able to compete with the big banks. This is good news for brokers as it means there continue to be options for their clients, but it also means they might need to work a bit harder to find the right solution. Fortunately, affordability platforms, which have grown in usage by brokers in recent years, provide a quick and easy way to review the options available from a wide range of lenders.

Another consideration for brokers is the role of fixed rates v tracker rates in securing the best affordability outcome for their clients. Fixed rates have obviously risen considerably over recent months, but with the political situation stabilising there is a school of thought that fixed rates may well have peaked. In fact, between 11th October and 8th November five-year swap rates fell by more than 1.2%.

From a broker perspective, locking a client into a five-year fixed rate at 5.50% or more is not as straightforward now as it was only a few weeks ago, particularly when you consider that many lenders have already hit their 2022 targets, so have little incentive to reduce rates this side of Christmas. As we enter the new year, however, lenders may need to price more competitively to win market share in what is expected to be a quiet period.

In this environment, tracker rates have come back into consideration. Even allowing for the latest 0.75% increase in Bank Base Rate, many tracker rates are at least 1.5% cheaper than the equivalent fixed rates and there is a good chance that rates won’t rise as high as the markets had anticipated. There is a strong case then, for some clients switching to a tracker rate for now, with a view to switching a fixed rate at some point in the new year, without any penalties. This may certainly be a cheaper option than simply accepting an uncompetitive product transfer.

There continue to be options for clients, but the market is more complex, with many more variables inputting into every case than there were six months ago. If you are a broker who still assesses affordability manually, you will be spending an increasing amount of time running the numbers, and you’ll probably miss out on the right lender on more than one occasion. Making use of technology, with an affordability platform like MBT Affordability will enable you to stay ahead of the game much more easily and precisely. So, you will be in a position to provide the best outcome for your clients.