The appearance of Liz Truss at the 2023 Conservative party conference and, at a bookshop near you, served to remind us that her legacy is far reaching. For mortgage intermediaries, she may be gone, but the impact of the mini Budget has yet to be forgotten.
Intermediaries taking part in our quarterly Project Mercury survey currently report little, if any, difference in confidence in the wider mortgage industry than in the final quarter of 2022, just after former Chancellor Kwarteng stood up behind the dispatch box to trigger the growth in interest rates which has only now started to moderate.
The hope now is that mortgage rates will start to come down from some of the dramatic highs which are making their presence felt in both the owned and rented markets. Concerns are growing amongst intermediaries about the health of the market and the impact on their clients as deals expire and there is a lack of low-cost options to replace them, leading to tense conversations and stressed negotiations.
We have found that product transfers are becoming the main source of business, as clients have few options available when, for example, they are coming to the end of a cheaper fix, but one they have only just managed to afford with Cost-of-Living issues. The lender retains the client, but, possibly without even realising, has a higher risk client on a rate that is now close to being unaffordable.
Some intermediaries have also forecast that in the medium-term stretched customers may be looking at borrowing for debt consolidation, and at that point they may find they have to re-mortgage.
The FCA’s Consumer Duty rules, which came in at the end of July, have caused added stress at a difficult time across intermediaries, adding to paperwork and to the feeling that they are being portrayed as scoundrels. There is very much a mood of shooting the messenger, which is unfortunate, but understandable.
What we have seen is that, while the bureaucracy of the new regime is painful, it does protect the intermediary if there is a complaint from a client or some other kind of dispute. Anything which helps to define best practice can only be helpful for the sector and added regulation increases barriers to entry, which helps to set intermediaries above others in the property market.
While we wait for the mortgage market to improve, there are some signs of hope in the mood of consumers. In our Moments of Truth study we found that currently 36% of consumers now expect their financial situation to be better in the next six months, against 22% who thought it would be worse. This is a significant improvement on October’22 when only 19% expected it to be better and 53% expected it to be worse.
While the topline mood is positive, the detail reveals the usual devils. One in five consumers are earning less than their expenses and another two in five currently meet their expenses but have no savings, putting around 60% in the position of being vulnerable to a shock.
Efforts are being made to conserve cash: half say they will cut back on energy usage and restaurants with a third cutting back on holidays and entertainment and a quarter planning to use their car less and dip into their savings.
Looking ahead, two in five expected to have less savings in 12 months time, a similar proportion will have about the same as now and just over one in five expect to have more savings.
A striking point for mortgage intermediaries was that very few said that they would discuss their financial situation with their bank. This presents an opportunity for the intermediaries to bring their specialist knowledge to bear, but also makes it more likely that, by the time a mortgage deal is up for renewal, the consumer’s finances may be in a more parlous state than they might have been with earlier help and intervention.
With 1.5 million mortgages renewed or renewing in 2023, we will continue to navigate the ongoing turbulence and watch inflation figures for signs that pressure can be lifted. Brokers’ expert knowledge will be needed more than ever as people try to hold onto their homes.