Many people will have been surprised to see the Bank of England hold the base rate at 0.1% this month, especially in light of predictions that inflation could reach 4% before the year is out.
There is clearly a balance to be struck by the bank between managing inflationary pressures and keeping the economic recovery on track. The sentiment seems to remain that rates will rise – more of a when not if, although calling the ‘when’ is very uncertain and could very well be into next year now.
The markets also seemed to assume a rise in November, and we’ve seen that reflected in lenders’ recent activity. Moneyfacts revealed earlier this week that average two- and five-year fixed rates have risen month-on-month for the first time since June 2021, after four consecutive months of price drops and we have also witnessed those eye-catching sub 1% rates disappear fast. This is not cause to panic but does suggest a changing of the tide.
For the last decade, rates have been at absolute lows, meaning many homeowners have never navigated a high interest climate. This is significant because UK Finance estimates that just over a quarter (26%) of residential mortgages are priced on variable rates, which translates to roughly 2.2 million borrowers. An astonishing 850,000 of these have tracker deals directly linked to the base rate, while 1.1 million are on lenders’ standard variable rates, which could also rise in line with any upward movement on the base rate.
It would appear that the mood music is truly changing and reassurance for customers will now be the order of the day. We must prepare for a new stage in the mortgage cycle where rates begin to increase gradually and maybe consistently.
Advisers should use the recent speculation around rates as a jumping-off point to renew conversations with clients around refinancing. Many borrowers will require increased support from advisers to understand how to protect against rate rises, while also continuing to access the mortgage products which best meet their individual needs. It’s the ‘little’ things, such as advising customers that they can use recent house price growth to remortgage onto a cheaper, lower LTV deal, that will really make the difference during this testing time.
Out and about
It has been great recently to be out and about meeting many advisers at events and catching up on the last few months. The engagement has been fantastic as has the optimism for what comes next. Being able to talk and present face-to-face has been wonderful for me. Whilst virtual webinars and education sessions have been so important, seeing reactions and getting feedback has been priceless. My favourite has been a lovely lady telling me that listening live is much better as she picked up so much more than the last time she heard me talk – whilst doing the ironing! I have taken this as a compliment!
Setting ourselves up for success
As is the case with so many of the challenges we face as a community, technology is here to help. Having access to top tools can bring efficiencies, access to a wealth of data insights and more capacity to speak with clients old and new. A closer relationship with technology also takes us one step closer to a frictionless mortgage journey, that allows borrowers and advisers to complete transactions from the comfort of home.
Technology is here to help, not replace advisers, and I urge advice firms to consider, if they have not already done so, how embracing technology can complement advice to serve ever more demanding customers.
Embracing digital solutions can boost both efficiency and retention rates, allowing them to spend time working with clients to find the best solutions for them. Mortgage platforms do so much for advisers, which is why we are now providing Smartr365 licences, at no cost to many and integrating our free criteria and affordability solutions into other platforms to help advisers to work on and in their business.
It’s vital we keep our feet on the ground to tackle this new rate environment head on. Homeowners cannot risk being caught on the back foot of price fluctuations and advisers have a duty to ensure that they are informed on what all eventualities will mean for their financial health.
All advisers, whether those that specialise in mortgages, pensions or any other type of investment or protection, are in a privileged position to help consumers to weather, whatever changes come next.
Kevin Roberts, director, Legal & General Mortgage Club
