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Rates of change

Interest rates Hamptons International Mortgages technical director Jonathan Cornell explains why advisers are often against the clock when it comes to securing interest rates for their mortgage clients.

One of the inevitable aspects of life in the mortgage industry is interest rate changes. Staying on top of these can get very complicated, especially at times like these when lenders seem to be repricing their fixed rates on an almost weekly basis.

Until a couple of months ago, it did not seem so imp-ortant, as fixed rates were falling and telling a client you can get them a cheaper rate is never a hard thing to do. But now fixed rates are going up, it is important to keep up with changes. Failing to key in or post an application in time may mean clients lose out.

Lenders change rates for a variety of reasons. Normally, fixed rates change once the tranche of money has run out although not all lenders choose to reprice once an initial tranche has expired. Lenders often use attractive rates to buy market share at the expense of their profit margins. Once the lender decides it has enough business, it will withdraw its rate.

Skilful lenders use rates to control business flow. When service levels become pressured, they reprice upward. When they are quiet, they reprice downward. This is easier for lenders which specialise in intermediary distribution rather than high-street or direct distribution as intermediary business tends to be more focused on rates.

Sadly, how lenders communicate rate changes to brokers can be a very varied experience. Whether this is by email, letter, phone or the business development manager in person, there is no consistency across the lender fraternity and far too often the communication comes too late for us to be able to secure the rate the client is expecting.

I would imagine that email is the best method of communication for most intermediaries as it is instant and it is easy to circulate the inform- ation quickly.

The most innovative way of informing us of changes must be the cartoon characters who populate BM Solutions’ website. Sadly, these do not work on some IT systems (including ours) so we have to rely on email.

A sensible lender will use its business development managers salesforce to co-ordinate rate changes in a manner which suits it. The more accomplished business development manager will often give the nod that a rate is likely to be withdrawn soon. Northern Rock is particularly good at issuing rate withdrawal warnings a few days before its rates are pulled.

For me, the most emotive issue relating to rate withdrawals is the timescale involved. Most lenders give a notice period and a date by which applications need to be made. I appreciate there is a fine art to choosing an appropriate notice period. If the period is too long, the lender will be overloaded with applications. If the period is too short, this will antagonise brokers who have notified clients of the rate and are arranging a meeting or waiting for the application to arrive in the post.

Alliance & Leicester’s standard practice is to send out emails late in the day explaining that online applications need to be keyed in by the end of the following day. I think the average notice period given is three to four working days, which has crept down from a week over the last year or so.

Some lenders, such as Portman/The Mortgage Works and Abbey, ask for a list of names, property addresses and loan sizes or ask the broker to get decisions in principle for their clients and then allow two weeks for these appli- cations to come in.

Some offer incentives to brokers to submit online applications by allowing them to be submitted after the deadlines for paper ones have closed. Lenders which allow brokers to package generally give more notice than those who do not, otherwise it would be impossible to send in a properly packaged application with a day’s notice.

I think the worst practice is advising us of product code withdrawals and not saying which product this refers to. I hate lenders which leave brokers trying to match products with their codes.

Then there is the practice of launching a rate and pulling it the next day. It happens. I think Derbyshire managed to have a rate available this year for almost a whole working day.

Some lenders reprice too often, making it hard to keep track of what is available, what is being pulled and when applications need to be in by. Sometimes, the closure dates for a mortgage club’s exclusive products do not match the closure dates of the lender’s core products.

The worst crime is not telling us that rates have changed at all. Professional etiquette prevents me from naming and shaming on this one but it does happen.

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