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It still pays to plan ahead, despite these unpredictable times

Louisa Sedgwick - 0523 920x518.jpg

Our Commercial Director for Mortgages, Louisa Sedgwick, writes in Business Moneyfacts discussing latest mortgage product trends and emphasises the importance of planning ahead to navigate the unpredictable nature of the housing market.

Looking at trends in mortgage products, I was planning on highlighting how markets had settled following the mini budget and, more recently, the disruption resulting from a number of US lenders falling into difficulty.

Moneyfacts figures revealed how product availability had rebounded after the mini-budget forced lenders to withdraw mortgages at a rate not seen since the pandemic. But, more recently, we’ve seen mortgages hit the headlines again after hundreds of products were pulled from both the residential and buy-to-let markets.

Figures released by the Office for National Statistics at the end of May revealed that inflation had fallen, but not as much as financial markets were factoring in. With renewed anticipation of further Base Rate rises and the possibility of recession still looming, we saw a sharp rise in swap rates.

If a lender’s cost of funding is subject to change while the interest they charge is fixed, they are exposed to risk. Lenders pay other financial institutions a fee - the swap rate - to lock in the cost of funding a mortgage over an agreed period, mitigating this risk.

Nevertheless, volatility in the swaps market creates a moving target for lenders because a mortgage priced using today’s swap rate can quickly become loss-making if tomorrow sees a sharp rise in swaps.

Lenders must be quick to respond to these changes to ensure they remain profitable, helping to maintain the stability of the financial services sector and economy more broadly. Sometimes, this results in products being withdrawn at short notice.

I’m sure all lenders recognise how frustrating this can be for both brokers and borrowers, so strive to communicate changes as early as possible. Unfortunately, this too can lead to issues because surges in business, resulting from a rush to secure deals before they are no longer available, can sometimes be difficult for lenders to service efficiently.

We’ve worked to manage this at Paragon, allocating extra resource at times when we foresee increases in business, and are proud of the feedback provided by mortgage brokers pointing to the benefits that this delivers.

While recent events show us that the housing market and broader economy can be unpredictable, it still pays to plan ahead, and this applies to borrowers as well as lenders.

Working closely together to create a clear picture of where the lettings business is now and heading in the future, brokers and investors can manage portfolios strategically, meaning landlords are well placed to take advantage of any opportunities and withstand whatever the market throws at it.

As the conduit between lender and borrower, brokers can help investors to understand how market conditions can influence product pricing and availability, ensuring that investment decisions are based on sound financial advice and not sensationalist articles or social media influences.