Having been in Mortgages for well over a decade I realised that there is a lot in the news about any impending base rate changes, whether that be up or down.
Most people think about what that means to mortgage rates. But what we never discuss is what it means for mortgage rates in the adverse world. With that in mind I wanted to make a post on our observations of the adverse mortgage market and changes to the Bank of England Base rate.
What happens to Mortgage rates in general?
With “normal” mortgage rates, what we tend to see is in the run up the base rate announcement. If there is an expectation that the base rate will go up, you find that lenders hold steady. If they want to increase their rates, they tend to do it in the weeks before. This typically results in people racing to secure a new product once it has been announced in the hope of beating any rate rises. The reality however is that the boat sailed maybe 2 weeks prior. Rates had already likely gone up – although it does not mean there will not be another round of increases.
If the rate is expected to come down with the most recent announcement what we noticed was that mortgage lenders INCREASED their rates in the lead up to the announcement. They then reduced them in line with the announcement. That meant the rates ended up being back to where they were 2-3 weeks prior.
But this is not always the case, where lenders want to actively lower their rates they tend to do it once the base rate drop has been announced or in the days following. Usually it takes one or 2 lenders to make the move and then the rest tend to follow.
What about Adverse mortgage rates?
This is why you are here I imagine…
Adverse rates are generally much more stable. There are a few reasons for this. Firstly, they are not competing on price. Their selling point is their flexibility towards adverse and that usually comes at a cost.
There is also less competition in the main. High street lenders are all generally much of a muchness and have similar rates and criteria. Specialist lenders on the other hand tend to look at things differently. Some might be good with quirky incomes, others with quirky properties, others just much more flexible with adverse etc. So whilst there might be a whole host of specialist or adverse lenders, they all have an extra niche.
Beyond criteria, their funding line tends to come in tranches and that does not jump up or down at every single announcement like swap rates tend to. It tends to be pension or investment funds or bonds and savings accounts. They offer a certain degree of return over a period of time and the money is farmed out at a margin above that in the form of a mortgage.
They do tend to follow market conditions, but at a much slower pace. Unlike high street lenders, they will not normally reprice to shave 0.02% off their rates and they will not increase or decrease at every announcement.
Summary
Im not sure how to summarise this post. I suppose in general if you are looking at the high street, the trick is to look at what mortgage lenders are doing in the 2-3 weeks before the base rate announcement. That will give you an idea of whether anything will happen and what.
If you are looking at adverse lenders, you might have a little time on your hands after the announcement… but not always, it can change beforehand.