MortgagesOct 18 2022

Mortgage lender pulls pre-offer rates as borrowers face 8% interest

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Mortgage lender pulls pre-offer rates as borrowers face 8% interest
[Simon Dawson/Bloomberg]

Bluestone Mortgages made the decision last week to pull all its pre-offer rates after telling brokers the scale of rises in swap rates had made its pipeline “sub-economic”.

The decision, communicated to brokers on October 12, has left clients facing interest rates of over 8 per cent.

“I felt sick having to tell her”, Mansfield-based broker Lewis Shaw told FTAdviser. He had secured a 6.25 per cent deal for his client, but the lender’s decision not to honour the rate meant her mortgage interest repayment changed to 8.25 per cent.

“It is detrimental to a customer I’m trying to help. It has cemented my position in not dealing with them [Bluestone] as a lender. I’m not going to put myself in this position again.”

Shaw’s client has no option but to accept the rate. She is now struggling with affordability, and may not be able to borrow as much.

I know a lot of brokers are anxious about their pipeline deals concluding successfully.Riz Malik, R3 Mortgages

A second broker, Bath-based Charles Yuille from Willow Brook Mortgages, said his client had an opportunity to buy their rental property from the local authority.

But because Bluestone pulled all its pre-offer rates, his client’s mortgage rate changed to 8.75 per cent.

His client, a young family, is no longer able to buy their rental property from the housing association.

“The decision to change rates on cases that have been processing for weeks, as Bluestone Mortgages have done, is a dark day for the UK mortgage sector. This kind of act has a huge emotional and financial impact on people,” said Yuille.

Bluestone told FTAdviser it was “working closely” with brokers to support them and their customers.

“Over the past several months, we have experienced extreme swap rate volatility [a leading indicator for mortgage rates] which has meant we have been faced with difficult decisions resulting in us having to migrate our pre offer pipeline to our new pricing,” a spokesperson said.

“However, given the ongoing challenging market conditions, we have now made changes to our hedging process to ensure loan values are locked in as soon as the application reaches us, ensuring we can better help brokers and their customers going forward.”

Signs of other lenders not honouring rates

Some brokers have cited individual cases at some building societies where rates have not been honoured due to the economic climate, though FTAdviser is not aware of any other lenders pulling all their pre-offer rates like Bluestone.

R3 Mortgages director Riz Malik said he came up against such a case. “I would expect this from a specialist lender due to their funding sources but not a building society. If market conditions deteriorate further, this could become a growing trend. I know a lot of brokers are anxious about their pipeline deals concluding successfully,” he said.

London broker at Springtide Capital, Craig Leverett, said he had heard of one regional building society pulling a rate after application, but that he has not experienced this with any mainstream lenders and labelled the case “pretty isolated”.

We are finding that things are changing so fast that we have to continually confirm the deals over the phone more often than we used to.Kev Tilley 

A number of brokers are yet to encounter any pre-offer rates being pulled. Though one cited “rumours” of such practice. 

Director of Anderson Harris, Adrian Anderson, said: “My understanding is that the well-known mainstream and high street banks are honouring rates that have been applied for.

“I have heard rumours that some of the challenger banks and secondary lenders have changed rates post application.”

Kev Tilley at Mortgageable said while most mortgage lenders are honouring rates, things are changing fast.

“We have to continually confirm the deals over the phone more often than we used to,” he explained.

Bluestone on why it pulled pre-offer rates

In an email to brokers last week, Bluestone said: "We have been battling against rapid swap rate growth and volatility all year, which has eroded the expected margin on our mortgage loans.

"To give you some perspective on how our funding model works, depending on the vehicle in which the loan goes through, we lock the rate with the funders at either point of offer or completion.

"This can range from anywhere between 4-30 weeks from when we receive the application.

"Until late September, we have been absorbing the cost of that margin erosion within the business.

"However, the scale of the rise in swap rates over the last two weeks has been so dramatic that unfortunately, all mortgage applications in our pre-offer pipeline have become sub-economic."

Swap rates are a leading indicator for mortgage rates. They have jumped nearly 4 per cent in the past year. As a result, the average two-year fixed mortgage rate has nearly tripled over the same period, now sitting at 6.47 per cent.

A large part of this increase took hold after former chancellor Kwasi Kwarteng's "mini" Budget last month.

The unfunded tax cuts he announced have now almost all been undone by current chancellor Jeremy Hunt, who said this week he wanted to help influence the markets towards stability again.

ruby.hinchliffe@ft.com