The ripple effect
Recent figures from the Financial Ombudsman Service show complaints about mortgages increased by a third between the second and third quarters of this year. However, complaints resolved in borrowers’ favour remained the same at around 33 per cent. Does this tell us more about the state of the economy than the behaviour of lenders?
Cornell: It is probably a balance of both. You would hope the number of upheld complaints would actually fall over a period of time as lenders take into account previous mistakes they have made. Maybe that is a naive hope but in most business when you conduct a post-sale questionnaire, it is quite good when people give you bad feedback as you know what you are doing wrong. If you correct that, you make your customers happy.
Taking the ombudsman data as a post-sale questionnaire is taking it to the extreme but it does seem strange that lenders have huge amounts of data about unhappy clients, yet do not seem to be able to work towards making those clients happier.
The point about the state of the economy is well made. Typically, when things go in customers’ favour, they do not tend to complain. Lots of people take out a fixed-rate mortgage when they think rates are going up but when rates go down, they tend to forget their primary concern was to protect the level of their payments rather than finding the cheapest deal. Many borrowers have short memories.
Lakey: It probably tells us more about the psychology of the public. We are inundated with people telling us we can complain and get our money back because we tripped over, took out PPI, whatever it may be. We have moved into this someone must be to blame and it is not me syndrome.
The fact that we are going through some tough economic times also means people are more willing to complain about something.
I do not believe that the advice people get deteriorates from one year to the next but I do think the ability to complain and the mindset that requires it is increasing, which is a shame. It can be resolved in many ways but, unfortuately, there is no appetite to do that from the regulator.
Online estate agent Rightmove recently said the UK is becoming a two-tier property market, with the average house price in the South of England more than double the price paid in the North. Is this something to be concerned about?
Cornell: Concerned is probably not the right word. Typically, if you are concerned about something, you can make some changes to it. It is difficult to know what changes we can make in this situation.
I live in Surrey and it feels like the local economy is doing quite well. It does not feel like there is a recession. Yet high streets are being decimated in other parts of the country, shops are being shut and businesses are closing down.
I can only assume this sort of chasm in house prices is because the economy in the North is not performing as well as the one in the South.
One of the things the Government is trying to do is promote growth across regions outside the South-east. I hope those will work but I am not sure what else we can do about it.
Lakey: I do not see it as a concern because these things tend to sort themselves out gradually. I live in Harrow, where it is relatively expensive. People who cannot afford to live there wander a bit further north into the shires to Bedfordshire, for example, where it is a bit cheaper. People who cannot afford the shires go further, into Northamptonshire.
This is a national drift. As a result, prices rise in the areas people are moving into and in the course of events, the divide irons itself out. However, it is true to say there are certain centres - London being the most obvious - where prices and salaries are higher than in other parts of the country and will remain so as it is a nexus of business.
How will the latest inflation figures affect the decision of whether to chose a fixed or variable-rate mortgage?
Cornell: Most people do not tend to look at something as blunt as inflation rates when they are trying to work out their mortgage. They will typically look at their own situation. Fixed rates are still at an all-time low and these will be quite attractive for a lot of people. We keep saying it is unlikely rates will get lower but because of the state of the economy and the global situation, UK mortgage rates just keep chugging down and down.
With the poor state of inflation, in a normal situation the Bank of England would be racing to put the base rate up and bring inflation back under control. But with the economy in such a terrible condition that it has had to expand quantitative easing, raising interest rates is not an option.
Lakey: It has grave potential outcomes. If we look at the past 30 years of political decision-making, it has been pretty unanimous whichever party has been in power that they want to fight inflation - and the way to do that is to put up interest rates.
We also know interest rates are at an all-time low. For these reasons, all the pointers are that rates will go up at some future date and the potential is for them to rise very rapidly. Ally that to the fact that if you go back to 1981, mortgage rates were 14.5 per cent and if you go back to 1991, they were 15.4 per cent.
We have a clear gap to be filled. Whether rates hit these levels is not the point. The point is that someone who has a mortgage today at 3 per cent is likely to be paying 7, 8 or 9 per cent in three years’ time.
A fixed-rate mortgage will secure that but it is a double-edged sword. If someone then finds themselves unable to afford their mortgage and wants to move, they will presumably have to pay a penalty. However, that group will still be smaller than the number of people who will be hurt by rising rates.
I am recommending to all my clients to go to a fixed rate and not consider a two-year rate because if that is all they can afford, they cannot afford the mortgage. Whichever way you look at it, a five-year fixed rate ticks the box.