Falling rates, and competition heating up — at the start of 2024 it felt like our sector had a spring in its step.
But, although we have seen several swallows, I’m not sure I’m quite ready to call ‘summer’ yet.
There have been some undeniable bright spots so far this year. Swap rates continued to fall in January, lighting the touchpaper that sparked a short ‘rates war’. Buyer enquiries spiked as a result, with sales agreed in the opening week of the year a fifth higher than those in the same week of 2023.
Demand is returning, but this can be a double-edged sword
The mortgage market is clearly on a stronger footing, but the hard work will need to continue as we manage volatility, uncertainty and the pressures of demand. It’s not time to party just yet.
Margins under pressure
The price reductions of the first few weeks of 2024 were warmly welcomed by borrowers, but for lenders the competition over rates is causing a strain.
Inflation is at a stubborn 4% and swap rates have crept back up above 4% too. Net interest margins are increasingly squeezed. Lenders want to remain competitive, but they are becoming particularly reactive to anything that could influence swap rates further, including unemployment and inflation figures, and emerging events like those in the Red Sea.
Reviewing technology requirements and identifying how tech can streamline processes will be vital
This sensitivity to any sort of movement in global economics and geopolitics makes it difficult to predict where interest rates could settle over the year ahead. While they may trade within a new range, whether they move up or down on this scale remains to be seen.
For advisers with clients who took a ‘wait and see’ approach to moving last year in anticipation of falling rates, now may be the time for them to consider pressing ahead rather than keeping life ‘on hold’.
It’s really tough for advisers
Advisers too will have welcomed the market uptick at the start of this year, but they will be feeling the impact of any ongoing volatility.
The constant changing of rates as lenders try to remain competitive has left many advisers reworking cases many times, often at the last minute. This is creating a lot of work for brokers; and, with more of these cases being product transfers, they will be working incredibly hard for a lower reward.
Managing the top and bottom line is essential and remembering the ‘add-on’ sales is critical
Our data at Legal & General Mortgage Club shows a near-50% increase in the proportion of product transfers; up to more than a third (34%) of all lending.
These challenges bring to the fore two important messages I want to share.
First, we must all do more to look after advisers. They play a valuable role in the mortgage journey and many will be actively supporting borrowers to help them navigate a complex market. I understand that lenders are under pressure as margins tighten, but my plea is to continue to keep advisers in mind, with a fair reward for the valuable work they are doing and giving them as much forewarning as possible about rate changes.
The hard work will need to continue as we manage volatility, uncertainty and the pressures of demand
My second message is to advisers: remember to look after yourselves and your business too. Demand is returning, but this can be a double-edged sword. As brokers get busier, supporting more and more customers, many will still want to go the extra mile to help their clients. They must keep in mind their own mental health to avoid burning out.
And, as attention turns to new customers’ needs, it will be easy to forget about supporting the business too. Managing the top and bottom line is essential and remembering the ‘add-on’ sales is critical, not just for borrowers but for the viability of each adviser’s business.
Protection sales are already under pressure. In a market where brokers are working maybe three times as hard for every pound they earn, they should grasp the opportunity to support their clients and their business by ensuring protection conversations continue.
Although we have seen several swallows, I’m not sure I’m quite ready to call ‘summer’ yet
Brokers will also need to find efficiencies within their business. I wrote in November that it was a crucial time for advisers to look within and see how they could set themselves up for future success. The market has changed since then, but the questions are just as relevant if brokers are to manage growing demand. Reviewing technology requirements and identifying how tech can streamline processes will be vital.
The start of 2024 has brought about an air of positivity in the mortgage market — but there will be more hard work to come.
Kevin Roberts is managing director of Legal & General Mortgage Services
This article featured in the March 2024 edition of MS.
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