THE RISING COST OF LIVING:
IT’S TIME TO START REASSURING HOMEOWNERS
Chris Holcomb, New Build and National Account Manager
Over the last 12 years, there have been periods where inflation and rising interest rates have been a concern, however the current period has been unprecedented. According to a recent YouGov poll, before the Spring statement, eight out of 10 consumers were concerned about rising living costs over the next six months.
This nationwide survey found that 39% were “very worried” about the cost of living squeeze, with a further 45% describing themselves as “fairly worried”.
With inflation on the rise, which the Office for Budget Responsibility is forecasting will reach 8.7% this year, it is expected that the Bank of England base rate will rise again following the increase to 0.75% in March 2022. Many borrowers will not have owned a property in an increasing interest rate environment. It’ll seem impossible for many to think back to 2007 when the base rate reached 5.75%.
The rising cost of everyday items and soaring energy bills impact consumer affordability, which puts further pressure on the cost of living. This provides an excellent opportunity for the intermediary sector, which historically accounted for around 80% of mortgage business in the UK. Iress, in September 2021, reported it had reached a whopping 90%.
Lenders such as Bluestone Mortgages are 100% intermediary led and rely on brokers to exist. In truth, we are not a lender that competes by rate, as we aim to serve complex credit borrowers that are unable to get high street rates.
There are many reasons to contact clients approaching the last 6-9 months of their fixed-term rate. It would be helpful to start the planning now and reassure homeowners that there are options, even if a product transfer isn’t appropriate. The volatile economy of the past years has led to the possibility of a remortgage where it is more appropriate, even if it may not be with a high street lender and increased rate.
It is estimated that 1 in 4 homeowners are on a lender’s variable rate, who will potentially be impacted by the base rate increase, with the possibility for further rate rises to come this year. A simple phone call to your clients asking how they are managing, what impact the current climate could have and discussing the implications could alleviate worries.
Personalisation is vital in the current climate. Checking Through bank statements, analysing expenses, and exploring credit reports to see trends of spending and credit utilisation are all beneficial in devising a plan. What type of property do they have/are buying and why? How steady or erratic is their income? Especially when considering bonuses, overtime and other non-guaranteed income.
It is important to advise on the client’s current circumstances to personalise the approach you’re recommending whilst factoring in any concerns they may have about market conditions. The more you know, the better you can reassure your clients. Whilst interest rates may be higher than expected, curated plans are best suited to their needs and affordability, despite rising costs.
Remember, lenders apply stress tests and are capped so that a max of 15% of lending can exceed a 4.5x income multiple. Some specialist lenders like Bluestone take a human approach, not just relying on ONS but looking at bank statements. Whether they work from home, travel by public transport or drive can make a big difference to a person’s essential expenditure. This approach is hugely beneficial in today’s climate and can be reassuring to a client as it is not reliant on averages across the country. Still, the client’s circumstances and lifestyle factors mitigate the risk of an overstretched borrower as interest rates or costs rise.
While challenges still prevail, it’s essential for those disenfranchised from high street lenders to remember the options available. Advising in a rising interest rate environment has its difficulties, creating opportunities. It Is more critical now than ever to embrace lenders that may be more expensive but offer a human and personalised approach to underwriting.
