Private Finance Mortgage Memo

is our take on what is currently happening in the mortgage market. Our views
are often cited in several national publications, including; The Times,
Telegraph, Financial Times, FT Adviser and Daily Mail, as well as a number of
key trade publications, so this should keep you ahead of the curve. If you have
any questions on any of these stories, or would like further information,
please do not hesitate to get in touch.

  • Christmas delays spark further fears for clients with mortgage offers
  • Lenders continue to adopt longer existing customer switching
  • Why finance can be as good as cash – analysis on recent data from MPowered

Christmas delays spark further fears for clients with mortgage offers

Delays in the conveyancing process has led to the average time to complete on a property purchase to increase to a point where buyers are worried their mortgage offers will expire before their completion date. While this is not ideal on any occasion, the higher mortgage rates vs 6 months ago make this scenario highly problematic. With the Christmas break coming up that is even more of a worry as most solicitors shut up shop for a couple of weeks.

There are many buyers right now who have a mortgage offer from earlier this year with a fixed rate secured far below current rates available, but are yet to complete their purchases due to solicitor delays, chain breaks etc. These borrowers are now understandably particularly worried with Christmas period and the delays they may experience over the festive period. There are likely to be delays other than just conveyancing in this period and likewise productivity levels could drop too.

One first time buyer client requested that we work out the current best 5-year fixed for them in case they didn’t complete in time of their mortgage offer expiry date. We worked out that they would go from 2.58% to around 5.50% which would cost them c.£75,000 over the next 5 years if they cannot complete on their current mortgage offer. There are many other examples of this with some falling into the 6 figures.

Lenders continue to adopt longer existing customer switching

This week HSBC announced they will be extending the roll off period on mortgage product switches from 120 days to 180 days, allowing customers up to six months to complete a product switch.

Why are banks more focused on retaining existing clients?

We have already noticed lenders focusing their energy on retaining existing clients rather than on acquiring new business as it is more beneficial to do so in the current mortgage market. New business can be tricky in a quiet market and an environment were interest rates are slowly reducing. This is because banks could see customers apply for a remortgage now and then re-apply with another lender in the future if that lender reduces their mortgage rates. This leads to wasted time and costs for the initial lender however, it is a cost of doing business in the current environment and more of a reason to try to retain existing customers as most are looking at remortgages 6-8 months before their mortgage expiry now.

Also, with the purchase market down currently, activity for new business is on the slower slide. When considering all these factors, it makes sense that existing clients are a key business area for lenders and to concentrate their efforts here and extend the time to product switch. We have also seen several lenders providing more competitive deals to existing customers.

Why finance can be as good as cash – analysis on recent data from MPowered

According to recent data from MPowered, currently 41% of sellers prefer a cash buyer. Mortgage free buyers drove the property boom for significant parts of 2022 as interest rate rises and the cost-of-living squeeze strengthened the role of this group of buyers. While there are many benefits to buying in cash particularity in certain markets, we argue using finance can be as good as cash in most situations and could be more beneficial for the buyer in some situations.

Benefits of cash vs finance

We have a lot of clients who could pay in cash but would rather have a mortgage, either because:

  • The client may want to maintain liquidity using a mortgage so has funds to make investments.
  • They may have the money to buy in cash within the stock market but want to wait for the market to further recover.
  • Drawing cash from certain places could cause a taxable event costing them 40%, instead of a mortgage that annually just costs them 5%.
  • If it is an investment property that is being purchased, it could be more tax efficient in certain circumstances for a mortgage to be taken, or taking advantage of gearing and buying a few properties could be more profitable and give greater diversification / lower risk.
  • Many buyers who say they are buying in cash still have to sell their own home to provide that cash, thus they have a chain. Finance can be used in some circumstances to buy a property without the need to sell the current one, so could be faster than cash.

Many cash purchasers go into a transaction hoping to refinance after the purchase, but do not realise capital raising mortgages can be strict (for example many lenders would not be happy to raise money for speculative investments even if the money used for purchase was withdrawn from these) and do not realise a lot of lenders need you to wait for 6 months before you can refinance a property.

Although many mortgage providers have extended timescales at the moment, there are several that we have recently had mortgage offers through from in a matter of days so applying for a mortgage wouldn’t delay the legal process at all and it could be more about choosing the right mortgage for that client if delays are problematic.

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