The rise of rate monitoring

Lee Flavin & Chris Evans (co-founders of Mortgage Metrics) look back on a memorable launch year ??

[Lee]

Liz Truss’ infamous mini-budget had sparked absolute chaos in September 2022 (the less said about this event, the better!)

For example, the average two year fixed rate jumped from 3.66% to 5.24% within a month.

But many mortgage professionals felt this was a knee jerk reaction from lenders, and they would eventually start to reprice their products at lower rates.

Brokers all around the country immediately began to monitor rates for their clients, to ensure they could benefit from any reductions between application and completion.

This was new territory for both brokers and homeowners, because there was no need for such a process during the ultra-low interest rate environment of the 2010s.

After a stagnant few months, mortgage products started to move in a downward trajectory at the beginning of 2023.

As full-time brokers ourselves at the time, Chris & I were also manually monitoring rates for our pipeline cases.

But the only way of doing this accurately was to rely on the frequent emails coming in from lenders (confirming the rate changes), and then copying the data into a spreadsheet.

We would then work out the monthly saving, communicate this with relevant clients (always the best part), and then secure the new rate.

All in all, it was extremely time-consuming and a lot of extra daily work for no further remuneration.

So we contacted other brokers to find out if they were feeling the same pain points, and quickly learned that many others shared our frustration.

This led to us building Mortgage Metrics , and we pushed the platform live over the summer bank holiday last year.

The industry press picked up on it straight away, with great features from Mortgage Solutions , Mortgage Strategy and Financial Reporter getting us off to the fast start we’d hoped for.

It turned out to be good timing because lots of mainstream lenders had just increased their ‘switch window’ for product transfers to six months, in line with the Government Charter .

We also had some good fortune, with rate reductions across a decent spread of lenders happening almost every day for the remainder of the year (we recorded more than 10,000 in our first 10 weeks).

But it’s fair to say it’s definitely been a year of two halves, as the momentum started to shift in mid-February.

Lenders started to reprice their products at higher rates, and in many instances, did so at fairly short notice.

This was a bit of an acid test for the product, but thankfully, brokers didn’t abandon the platform and carried on setting alerts in readiness for the next wave of reductions (which restarted back in May).

Looking back, that three-month period served us well because it proved our service can maintain its value in a rising rate market.

[Chris]

Our recent research indicates there are more brokers actively monitoring rates than brokers who aren’t, even though it isn’t a regulatory requirement for them to do so.

This speaks volumes about the integrity of brokers, because over the past year, they’ve already collectively saved homeowners an astronomical amount of money.

For example, if a client with a mortgage balance of ￡184,000 had secured the average two year fixed rate of 5.94% in September 2023, this average rate had fallen to 4.73% by January 2024.

If they had not been alerted to the lower rate available to them prior to their completion date, based on a term of 25 years, this would have cost them an extra ￡131 per month, or ￡3,144 over the two year period.

The Intermediary Mortgage Lenders Association (IMLA) predicts that around 90% of all mortgage business will be conducted through brokers by the end of this year (up from a 61.9% share of mortgage distribution ten years ago).

The FCA has formally told us there are currently 34,856 individuals who are qualified to advise, or arrange, regulated mortgage contracts in the United Kingdom.

Figures from the Office for National Statistics (ONS) show that in the first three quarters of 2024, 884,999 mortgages will be up for renewal.

Based on these numbers, it’s highly likely that brokers have already saved homeowners hundreds of millions of pounds, and have the potential to save them billions more.

With some lenders currently trimming their rates on a weekly basis, this could easily result in a raft of thick and fast changes for brokers to implement in the coming months.

[Lee]

Rate monitoring has become an integral part of the broker-client relationship, and it’s an ancillary service likely to exist for a very long time to come.

The upside for brokers is that it’s a unique selling point, because consumers are unlikely to be offered this through a lender’s direct channel.

But the potential downside is that brokers have probably entered themselves into a lifetime commitment with any clients they’ve interacted with over the past two years at the very minimum.

If this expectation has been set, at what point in the future is there no longer a need to monitor rates?

Back in 2021, a number of mainstream lenders were offering sub-1% fixed rates as standard (not just ‘Own New’ products for example).

I think the lowest I ever came across was around 0.84%, and can’t remember a lower-priced rate than this over the past twenty years (my length of service within the mortgage industry to date).

Until the day product pricing returns to anywhere near this sort of level (which might never happen), there will always be such a huge gap for lenders to be able to consistently vary their rates.

Our aim over the next twelve months is to add more lenders (to move closer towards whole of market coverage), and to add more useful features (to save brokers even more time every day).

Fixed rates are finally starting with a ‘3’ again, which has resulted in a resurgence of first time buyer and home mover enquiries.

The Labour party has boldly committed to building 1.5 million homes over the next five years, in an attempt to reignite the housing market.

Should they stay true to their pledge, the continual task of monitoring rates could become even more of a challenge for brokers.

We’re confident we can play a huge part in supporting intermediaries as application volumes ramp up, for the greater good.

Thanks for reading, and fingers crossed for a solid period of rate reductions to close out 2024! ??