Short mortgage shelf-life gives contractors unique advantage

"I must be the unluckiest bloke in the world," the comedian said. "I'm the only person in history to have bought a three-piece suite when there wasn't a sale on."

An oldie, but a goodie, which I was reminded of when I saw the latest mortgage shelf-life figures.

In these days of mass advertising, we've become desensitised to glib taglines.

So, when you hear something like "limited time deal" or see a clock counting down on a website, it hardly dinks our psyche.

We think, "Yeah, right. There'll be another sale next week." Or, "I can get it cheaper on [Amazon/eBay/Temu]" (delete as applicable).

But, in this instance, mortgage deals really are disappearing in almost record time.

Today, we look at why this is so. Also, why contractors could be the unwitting beneficiaries of this scenario if they put their skates on.

A (very brief) history of mortgage shelf lives

The least time mortgage products have, on average, spent on the shelf was July last year. Lenders were introducing deals, then, twelve days later, pulling them.

By the time we entered 2024, mortgage shelf life had stabilised to a somewhat manageable 28 days. This still meant buyers had little time to dawdle. But it was a far cry from less than a fortnight to make up their minds.

Fast forward to early February this year, and shelf life fell off a cliff. Your average mortgage deal now hangs around for 15 days, then Poof!

If you've not accepted the offer, you'll have to consider another. And, based on current trends, probably at a higher interest rate.

This is a huge headache for homebuyers, lenders and brokers. But, with the Bank of England still holding out on lowering its base rate of borrowing, many lenders are second-guessing when cuts will begin. If someone has a bottle of Paracetamol, please be as kind to pass it this way.

What's causing the disappearance of these almost ethereal deals?

When something happens in the mortgage market, you can often directly attribute a trend or a reason. While this is partly true here, some of the recent figures are downright confounding.

The biggest contradiction our clients are having trouble understanding is why interest rates are going up again instead of down. Inflation has dropped to 3.4% (Feb 2024), but the BoE's base rate is still 5.25%.

Weren't we promised that, if inflation comes down, so will interest rates?

Yes. And no. The forecast for inflation was always 2%. We're not there yet. But, when inflation began to drop suddenly in late 2023, mortgage lenders took that as a sign. 

Swap rates at the time were much cheaper than the BoE base rate. Lenders, rightly or wrongly, offered mortgage rates based on those swap rates. Perhaps they expected that, by the time the 'swap' money they'd secured ran out, the BoE would have brought its base rate down.

That reduction never came. Even worse, latest predictions suggest the BoE will start making reductions later than expected, and definitely in fewer cycles than first predicted.

For months, we've been expecting the base rate to drop to 4% by the end of the year. Now, we're not so sure.

In the meantime, swap rates have been climbing. This has meant money is costing lenders more, which is why we now see interest rates climbing. Mostly. So, let's see what that glut of info means in actual mortgage interest rates available today.

Where rates are now, at-a-glance:

Here's a brief overview of the rates available and affecting the market:

Average SVR (standard variable rate)

The SVR is the rate homeowners pay after their fixed-rate term expires (if they don't product switch or remortgage). The highest the average SVR has ever been is 8.19% (Nov/Dec 2023).

It's now climbed to 8.18%. Odds are, it will set a new record after the next cycle of figures are posted.

With 1.5 million homeowners' fixed-rate deals ending this year, most paying 3% or less, that's a huge wedge of potential pain.

Swap rates on the up. Or not.

Like fixed-rate mortgage deals, lenders generally take up 'sonia' swap rates in two- or five-year fixed terms.

In mid-February, a two-year swap stood at 4.429%. By March 8, they'd climbed to 4.463%. This reflects some of the uncertainty that's making the BoE reticent to begin cutting its rate immediately.

In contrast, the five-year sonia swap fell over the same period. They were 3.896%, but had dropped to 3.85% by early March. This drop could suggest that mortgage rates won't drop below 4% for the whole of the next government's term. 

So, yes: if you can get around 4.5%-4.75% today, you're doing well.

The effect higher swap rates have had on mortgage interest rates

Both the average two- and five-year fixed-rate deals have risen since early February. 

The average two-year fixed deal was 5.56%, but now stands at 5.76%. The average five-year fixed-rate deal is 5.34%, up from 5.18%.

So, again, there's a contradiction: if five-year swap rates have fallen, why have five-year rates increased? 

This is a best guess, but lenders may have gone too hard to get new or retain business earlier in the year. That they're having to increase rates when swap rates are falling tells me many lenders are doing in-house adjustments in line with the protracted period of the base rate remaining at 5.25%.

Available mortgages breach 6,000!

Here's the irony. There are now 6,004 different mortgage products across all lenders on the market. That's the highest since the record number of deals were available (6,192) in March 2008.

This should mean bags of choice for all manner of homeowners. But, with rates creeping up, many homeowners will, even now, defer taking the plunge. (please don't - it's not going to get noticeably better any time soon, as mentioned earlier)

The one silver lining is that there are more mortgages on the market for low-deposit borrowers. There are now 761 90% LTV (10 deposit) mortgages available, up from 681 in February,

For those with just a 5% deposit, it's also better news. There are over 300 deals available across all lenders, the highest since the record high of 347 in June 2022.

The advantage for contractors

One thing we know for sure is that contractors don't hang about when committing to a new mortgage. Even better is that, because of the streamlined process of contract-based underwriting, contractors are used to moving quickly.

But not everyone does, especially homeowners facing a much higher interest rate than they're already on.

Here's what might happen if a lender pulls a mortgage where potential buyers/remortgagers haven't confirmed. For context, though, here's what happens with a successful completion:

Our typical mortgage process

This is the typical successful mortgage process we go through for, predominantly, homemovers and first-time buyers (someone remortgaging wouldn't need the initial steps):

• the client sees a property they want to buy and approaches us for a mortgage;
• we submit the basic details to a lender (income, available deposit, house purchase price);
• the lender offers an agreement in principle;
• the client has their offer on the home accepted;
• we submit the full application;
• the lender approves the mortgage and acknowledges the details to us, including the secured interest rate.

That's it, job done, all assuming that it's done promptly and the lender doesn't pull the mortgage before the buyer has given us the go ahead.

When we struggle is when the decision's delayed, which homeowners wanting to remortgage are more prone to do.

When we might have to renegotiate a new mortgage offer

We go through the same early process stages, up to the point of securing an agreement in principle. But, for whatever reason, the client doesn't act immediately.

The reason for the delay? In today's market, the client is probably delaying because they're paying a fixed rate of between 1%-3% and now face paying 4.5%-5% for a new deal. So, somewhat understandable.

But we do have an early warning system of sorts. Our mortgage IT system is state-of-the-art. At the push of a button, we can see at what stage every client's enquiry is at. And it's a good job we do.

Lenders can, and do, often give us less than 24 hours' notice that they're pulling one of their mortgage products. If that call from them doesn't come through until 4 pm, we go into fire-fighting mode.

We have to ring every client affected by the disappearing mortgage(s) before theirs disappears. And there are only two outcomes from this type of proactivity; the client:

• agrees, in writing, to proceed and we try to rush the submission through to try to beat the deadline
• doesn't acquiesce, and we have to source them a different mortgage, which, as we've said earlier, will probably be at a higher rate.

There is another way.

Rate Monitoring Service

With our Rate Monitoring Service, we can 'lock in' a new deal for any mortgage up to six months in advance of our clients' fixed-rate expiry date. This eliminates the hassle of worrying about missing out on a mortgage deal you're happy with.

Once you lock a rate in, that's the highest you'll pay when you're ready to remortgage. If the rate goes up, it doesn't matter: you've locked the deal in.

If the rate goes down, awesome. We'll automatically switch you to that new lower rate. You don't have to lift a finger. We do it for you, because, why wouldn't you want a lower rate if one becomes available?

Some lenders limit the amount of times you can switch. But, even with the lower shelf-life, it's unlikely the same mortgage product will switch that many times. There's not a good reason I can think of for not using this service.

So, if you see a home you like, or a remortgage deal you can afford, my advice is: take it. Certainly, fixed-rate deals won't go very far one way or the other for the foreseeable future, anyway.

SVRs' though? They could yet break the record they're only 0.01% shy of breaching. 

Don't leave yourself in any doubt. Run through the intricacies of your situation with a specialist broker. They'll help you see what the latest deals and interest rates mean for you. Then compare them against paying 8.18% for an indeterminate time. We'll back you all the way.