Lender (re)actions in the mortgage market

Lenders tend to be like lemmings when it comes to rate rises. Firstly they don't want to be the one left in the market with competitive rates when everyone else has exited. This can have an adverse effect on business flows meaning they are overwhelmed with applications which they are unable to deal with efficiently. Secondly if other lenders are re pricing their rates to increase profitability, then why shouldn't they?
Lenders could try providing greater notice of rate changes or set their rates less competitively to maintain business levels.
As far as borrowers are concerned one main thing to consider is extending their mortgage term. This will have the effect of lowering monthly repayments. Definitely, consumers will be put under financial pressure and we will see an increase in arrears, repossessions and general stress for borrowers. The FCA needs to put greater pressure on lenders to have systems in place to allow lenders to remain in their homes.

While it's true some lenders are removing products due to the rising cost of money, it's important to recognise the situation is more complex than rubbing two damp sticks together and hoping for fire. Lenders sometimes make these decisions to maintain their service levels whilst juggling their ability to handle business demands.

Simply sticking to the lowest available interest rate can actually hinder their ability to effectively serve their customers. It's a hard truth but there you go.

In other cases, lenders may need to balance their lending volumes in specific regions. Therefore, labeling their reactions as overreactions is an oversimplification that fails to capture the intricacies involved. Making fire took the intervention of Prometheus, a Greek god no less. So far, he hasn't shown up for this particular situation.

Lenders themselves aren't overreacting; as they are simply reacting to the swap market changes being forced on them for the cost of funds they then lend out. Unlike other businesses lenders don't keep "stock", so if the cost of their raw materials goes up (in this case, money) then they have to immediately reflect that in their own price to the market, otherwise, they are simply selling things at a loss, which no business would do if they can at all help it. To compound matters, if they do not act swiftly then they can find themselves the lowest cost lender in any given market, resulting in absolutely huge volumes of business (which they are now making a loss on), the end result being massive back-logs and, ultimately, lots of unhappy customers - a real lose-lose situation for the lender. Lenders do however have to better pre-empt changes and make more proactive, rather than reactive, rate changes to better manage their in-flows to allow them scope to give more notice to brokers.

With the market changing constantly it is hard for lenders on what to price and when to make changes. However, the general consensus among brokers and clients is that they should be given sufficient notice, 24 hours would limit panic to lock the rate before lenders system crash and prevent applications. HSBC had the issue last week where they had to backtrack to allow people to secure the rates they were removing. It is not the first time they have had this issue changing the rate with limited time and having huge system issues. It causes unwanted concern for clients and extra time for brokers to submit cases.