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Why a base rate cut could be bad news for borrowers...

ended 20. May 2024

With the base rate potentially set to be cut as early as June, brokers are bracing themselves for a busier second half of the year. But many are worried that “rising demand could see many lenders struggle with increased application volumes, potentially leading to higher fixed rate pricing than is necessary because they have to manage the inflows.” One said: “Borrowers are effectively paying for lenders' organisational and technology ineffiencies.”

13 responses from the Newspage community

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Riz Malik
Independent Financial Adviser at R3 Wealth
Service levels and the ability of lenders to manage volume are a big concern in the mortgage industry among brokers, especially if activity ramps up in the second half of the year as expected. When lenders get too busy, they usually withdraw from the market temporarily by increasing their rates and, like dominoes, others follow in fear of being flooded with business. Borrowers are effectively paying for lenders' organisational and technology ineffiencies.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Rising demand could see many lenders struggle with increased application volumes, potentially leading to higher fixed rate pricing than is necessary because they have to manage the inflows. It's disappointing that service standards among lenders are declining, partly due to continued remote working. This situation highlights the need for lenders to improve their service capabilities to meet consumer demands. The profits are there so why are they not being invested in bigger workforces and more intelligent tech? Addressing these challenges would create a more resilient and responsive mortgage market, better serving all, but shareholder returns are clearly the focus. Lenders must better manage demand while maintaining high service standards to support consumers in their home-buying journey.
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Craig Fish
Director at Lodestone Mortgages
Since the pandemic, service levels and turnaround times from many of the major lenders have nosedived. Many are struggling to cope with the depleted business levels that we are currently experiencing, so if following more positive economic data and rate cuts we see business levels increase the fear is that service levels may severely impact the home ownership journey, causing untold stress and wellbeing challenges for consumers and brokers alike. Many lenders have reduced headcount and branch outlets to cut costs. Perhaps now is the time to invest more into the intermediary channels with increased staff and proc fees for the increasing workloads that brokers are taking on.
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Michelle Lawson
Director at Lawson Financial
Some lenders are struggling with service levels in the current climate so it will be interesting to see how they will handle an uptick in activity and applications. It shouldn't be right for lenders to increase rates to stem the flow of applications, but sadly it happens all the time. Once again, borrowers could be punished through no fault of their own or indeed that of the markets. One set of rate hikes from a lender to control inflows can trigger more lenders to hike, which results in higher borrowing rates than are really necessary.
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Dariusz Karpowicz
Director at Albion Financial Advice
A rate cut cannot be bad news for borrowers—whether lenders will cope is another matter. We've seen how unprepared lenders were during COVID, with wait times peaking at 20 working days for some major lenders. Have they improved since then? Unfortunately, many have reduced their staff, which could lead to even more delays if demand spikes. While some lenders have upgraded their technology and resources, many still lag behind. If the market heats up, we might see service levels struggle to keep up once again, making it a challenging time for borrowers.
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Ben Perks
Managing Director at Orchard Financial Advisers
A base rate reduction can only be a good thing for borrowers. Better rates will cause an influx of applications to lenders and they need to be ready to react to this. It is always disheartening to see lenders increasing rates just to stem the flow of applications. They should be investing in their staff and systems to ensure that borrowers do not have to pay a premium for poor service.
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Justin Moy
Managing Director at EHF Mortgages
We have certainly seen a deterioation in service standards from a number of mortgage lenders over the last few months, so any increase in demand may cause further delays and unfavourable underwriting decisions. We can be waiting weeks for mortgage offers whilst lenders deliberate over some of the smallest details not relevent to the case. Lenders with good processing, lead times and consistnency of decisions do not need the leading mortgage rates to grab market share, as brokers will gravitate to those that deliver, and not dither.
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Harps Garcha
Director at Brooklyns Financial
Rate reduction is exactly what the economy needs for both homeowners and businesses. However, there's concern about whether lenders will be able to manage the pent-up demand. Currently, service levels are not meeting expectations. With potential rate cuts on the horizon, the key question is whether lenders have started planning to handle this increased demand effectively, particularly in light of the considerable reduction in physical branches over the past couple of years
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Many lenders are clearly already struggling with service levels based upon the current demand and application numbers. Which has let to many small shuffles in rates lately to close off the taps. So increased demand from an uplift on borrower confidence will enhance these current issues and could lead to some poor outcomes for borrowers and stressful times for brokers.
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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
There is no question a rate cut is needed and will be the boost needed for borrowers. However, whether lenders will be able to cope is yet to be seen. There are lenders that are seriously struggling in the current climate, and large increase in business will be carnage.
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Elliott Benson
Owner at Sett Mortgages
This comes down to managing clients expectations, just as after lockdown when lender service was painfully slow, if there is going to a delay, as long as clear communication is in place and the client is aware it is going to take longer, I think clients would be satisfied with this as long as they were aware and were going to get a lower rate.

Of course, one of the things which could be done is utlising common sense at underwriting stage to eliminate unneccesary delays. I have had underwriters ask things such as "What is the balance of the clients student loan?", "Can you provide proof of everywhere the client has lived for the past three years?" along with generally just not reading notes or looking at uploaded documents carefully enough which does not help matters
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Mark Hosker
Mortgage Adviser at Cyborg Finance
Mortgage advisers play a crucial role in this landscape. At Cyborg Finance, one of our core responsibilities is to identify lenders who may be slower in processing applications and guide our clients accordingly. This ensures we can mitigate potential delays and set realistic expectations for borrowers.

Moreover, it's essential to recognise that most borrowers prioritise securing attractive mortgage terms over minor processing delays. The potential savings over a 2 to 5-year period offer a considerable incentive to accept slightly longer processing times, especially if it means benefiting from reduced monthly payments in the long term.
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Robert Timm
Managing Director at Sunland Mortgages
Considering the current market is relatively passive, the service levels provided by certain lenders, including some of the 'Big 6', has been very disappointing.

Lenders will really need to consider increasing staffing levels if base rate cuts do hit over the summer as expected, as this will likely drive activity among consumers. Many are increasing their tech capabilities to try and automate certain areas of the process, but there's massive room for improvement.

One of my clients were borrowing £20,000 on a like for like remortgage from one lender to another, and the property value was expected to be £540,000. That lender instructed a physical valuation of the property. This beggars belief, and left me as a broker, and my client, completely bemused. That could have been a time saving for so many stakeholders with a bit common sense applied.