28 July 2012
The ever changing conditions of the property market have left some borrowers feeling they are in the middle of a mortgage drought. If it wasn’t for the astute decisions being taken by lenders, the situation would be significantly worse. Counter intuitively lenders have helped borrowers by increasing their fees. Although the Bank of England has shown mortgage rates were stable in May, in the past three years, fees for fixed and tracker mortgage products have risen by over 20%. Whilst some individuals and consumer champions find this outrageous, I think it’s to be applauded.
As the sands of the mortgage market shift, lenders have seen costs rise as a result of growing regulation and the euro crisis. Raising fees for mortgage products is a sensible way of ensuring customers can take out sustainable loans. When it comes to mortgage rates, lenders have had to discover smart solutions for their customers to avoid getting stuck in quick sand. Lenders are providing highly competitive mortgage rates but have had to increase their arrangement fees to make up for the hit they are taking as interest rates stay stubbornly low. The average cost of obtaining a property loan is now around £1,511. That’s an increase of £878 since 2009. The question is whether the move to higher set up costs and lower rates is the right strategy for lenders looking to make mortgage finance available in the long term. It’s a tricky area.
So that’s the solution lenders have adopted. Now what should borrowers do? Let’s start with the basics. For high LTV loans, a high fee may be the best way of making a loan sustainable in the long term (so the borrower can benefit from the lowest interest rate). Swallowing higher set up costs can reduce the cost on a monthly basis for borrowers.
Despite economic uncertainty, lenders have taken a progressive attitude in propelling the housing market upwards. They are continuing to cater for the diverse needs of borrowers by creating a wide range of products, resulting in greater choice for consumers to focus on their specific requirements. The positive approach to borrowers’ finances demonstrated by lenders is evidenced by a 5.6% increase in mortgage advances in the 12 months to April 2012 according to the CML.
All in all, the move to higher set up costs has added to the diversity of products available. It’s an indicator of lenders’ creative and proactive approach to increasing activity levels, even in the face of economic gloom. They have been major drivers in the property market and we anticipate their activity will not diminish in the year ahead.
Paul Huntis managing director of Phoebus Software