The recent turmoil seen in the mortgage market is nearing an end, but there is nothing to say lenders will not respond the same way the next time there is wider economic uncertainty, according to the guests on the latest edition of the FTAdviser podcast.
Over the last two weeks, more than 1,000 mortgage products have been pulled from the market causing mortgage brokers to demand mandatory notice periods of rate withdrawals in order to help them better manage client applications.
Speaking on this week’s podcast, John Charcol’s mortgage technical manager, Nicholas Mendes explains what it was about April’s inflation figure that caused lenders to begin pulling rates.
Mendes was joined by Quilter’s mortgage expert Karen Noye and London-based brokerage Private Finance’s technical director, Chris Sykes who shared their outlook on what the recent turbulence means for borrowers.
A recent campaign launched by mortgage brokers Riz Malik, Lewis Shaw and Jamie Lennox is seeking to get lenders to pledge to introduce notice periods of 12, 24, or 48 hours before they withdraw rates.
Mendes, Noye and Sykes all weighed in on the merits of such a policy and warned that while it is a good idea in principle, it may lead to unintended consequences in practice.
“In a lot of ways it would be a good idea,” Noye said.
However she added: “If it gets to a point where they do have to give mandatory notice, will this mean that it’s costing them in rates because of the fact they can’t make those quick changes as market conditions move?
“And then does that mean that the borrowers are going to be paying more? So it’s a fine balance and really difficult one to decide on because ultimately we want the best for our clients.”
Mendes added: “We need to bear in mind lenders need to be profitable and balanced with service levels. So lenders need to be able to react to unaccountable market shifts, which unfortunately means sudden withdrawals.”
“If we do see mandatory [notice periods] that’s only going to put more pressure on rates, which affects the client at the end of the day.”
House price predictions
The guests also discuss why we have not yet seen the drastic house price drops that some were predicting at the end of last year.
“From what I’ve seen the people who were predicting the larger ends of those predictions have gone a little quiet. So I think that speaks for itself a little bit,” Sykes said.
He went on to say that from recent conversations he has had with economists and other property analysts, the damage appears to already largely be done.
Adding to this, Noye said the shortage of houses nationally and the current low unemployment rate are factors that have so far kept house prices stable.
“At the moment I feel that is probably going to be more of a steady dip than a great big crash that was first predicted at the end of last year,” Noye said.