15th September 2015

Mortgage Pricing: Time to Take Action?

Since mid-2007 the bank base rate (BBR) has only been lowered and for the past 77 months there has been no adjustment at all, as the BoE keep interest rates at record low 0.5%.

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Mortgage Pricing: Time to Take Action?

Although the Bank of England Monetary Policy Committee August vote suppressed hawkish dissent, the quarterly inflation report showed a rising confidence amongst businesses and consumers. Wage growth is picking up; private domestic demand is growing and is deemed to remain robust. All of these set exceptions for the economy to expand this year, making 2016 the likely year for an interest rate rise.

The outlook of higher rates is making both mortgage lenders and mortgage-holders nervous. According to figures from the British Banker’s Association homeowner remortgage activity in July rebounded strongly showing lending was up 29% year-on-year. As lenders update their remortgage interest rates and fixed rate loans remain cheap, homeowners are rushing to secure new mortgage deals.

Recent evidence is showing that although the BBR is flat, the fixed rates were starting to increase with both the average two-year fixed rate and five-year fixed rate going up by 60 BPS and 50 BPS respectively (source: Moneyfacts).

Due to rising acquisition costs, customer retention and associated pricing are imperative for mortgage lenders to achieve their business objectives. For those lenders that intend to capitalise on current market conditions, offset higher costs for their own funding and be well positioned for the demand surge, now is the best time to prepare for pricing and retention challenges.

As the competition intensifies, lenders ought to have a well-defined portfolio optimisation strategy. A strategy, which will provide them with an array of tools and insights allowing:
· To build an in-depth understanding of unique borrower types based on market and lender’s data.
· To improve product pricing and channel strategies by understandings multiple intricacies of customer segments.
· To take a definitive and timely action when the market conditions change, leading to time and cost saving.
As the lending boom this summer is continued and re-mortgaging is the evident leader, now might be a good time to review pricing strategy.

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