To say the past few weeks have been tumultuous is an understatement. It’s clear the so-called mini-Budget spooked both the public and the markets and resulted in near panic from some quarters.
I don’t want to underplay the impact of what happened in those few days but, for those of us whose careers started more than a few years ago, this is the third or fourth such perceived crisis we have seen.
At the point that we are in the middle of it, it can feel like the world is about to end, but it never does. Writing this a fortnight on from the mini-Budget, things are already calming down.
Swap rates and interest rates that had spiked over two or three days are already falling back again. Lenders that pulled mortgages are already looking at how they can reprice, and re-enter the market.
When in the middle of a dramatic event, people forget what happened in the past and the steps we went through to recover. Similarly, when things are good, many people think this will last forever, spend all their money and forget, or prefer not to remember, that bad times, like good ones, are cyclical.
This is not to say we are not in a challenging time that is likely to last for at least the next couple of years. The speed at which interest rates have risen — and will continue to rise — will cause a real payment shock for many, especially a whole generation of homeowners who have only ever known rates to go down.
What it means for brokers is they will have to work much harder for their money.
On the positive side, good financial advice will be in very high demand. But providing that will take longer and could be a lot more involved than it has been in the past decade or so.
It is possible people will pull out of mortgages and house purchases because they feel they can no longer afford the higher rates; or chains could fail because someone else has pulled out.
Lenders are pulling rates up to offer stage, sometimes with only 24 hours’ notice, so brokers will need to rebroke deals and may have to do so more than once.
The offer-to-completion time is also likely to get longer. It currently stands at about 22 weeks, which is 154 days, but lenders are already shortening the time for which mortgage offers are valid. Typically, an offer is valid for 90 or 100 days, so brokers will need to manage clients’ expectations because their offer may expire before they move house and the mortgage could well cost them more.
With this in mind, sensible brokers will advise clients not to max out their affordability when they get their first mortgage offer, so they have some wriggle room if rates do, indeed, go up.
Communication with lenders will be more important than ever too, as brokers will have to keep them appraised of what is happening with their client. In fact, communication with every party in the housing process will be crucial, including solicitors and valuers.
It is the brokers who are most engaged in what is happening with their clients’ cases that will add the most value, helping to keep it on track and keep the mortgage in place. They will also think ahead and be prepared with another mortgage, should the initial offer expire and the lender be unwilling to extend the term.
This is not the way many brokers have been used to working. It has been easy money when clients just walked through your door and you could place the case.
Undoubtedly we will lose some brokers from the market over the next few years, as we did after the credit crunch in 2007 and 2008.
But the good brokers will do well: those who are prepared to be proactive and go the extra mile, to ensure they advise on protection on every single case, not just when they have a bit of time on their hands or are having a difficult month.
This extra activity should not come for free, however. Brokers will need to increase the fees they charge — or start charging if they still do not.
It is clear there will be significantly more for brokers to do than they are used to. But the reward should be a higher fee and a growing, loyal client base as borrowers remember who it was that really helped them, and pay back in referrals and repeat business for many years to come.
John Phillips is national account director at Just Mortgages