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Rate rise uncertainty shows value of mortgage advice – Calder

by: Craig Calder, director of intermediaries at Barclays Mortgages
  • 12/04/2018
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Rate rise uncertainty shows value of mortgage advice – Calder
The recent performance of the UK service industry may yet provide one of the biggest indications that we could be in line for a May interest rate hike.

The latest activity index from the Chartered Institute for Procurement and Supply was reported to have jumped to a four-month high after the sector’s biggest influx of new orders for almost a year. February saw strong levels of job creation, as companies expanded their payrolls in order to keep up with new demand.

However, firms were still said to be finding it hard to make the right hires, suggesting that the labour market has remained tight.

Bank of England governor Mark Carney previously suggested there could be two further rate hikes to curb inflation over the next three years – but speculation is mounting over the chance of additional rate hikes.

Even though the Monetary Policy Committee (MPC) has voted unanimously to leave base rate at 0.5% in recent months, the tone of the discussion has only added fuel to the fire that the cost of borrowing will not remain this low for much longer.


£10bn hit

So with interest rate pressure increasing, what does this mean for the mortgage market?

Influencing economic factors can change quickly.

As such lenders, intermediaries and borrowers need to keep fully updated on how these can directly affect the interest rate decision making process.

And of course this is not to mention the direct effect on their business and the needs of their clients.

Research from Savills suggests the cost of borrowing for people with variable or tracker-rate mortgages — about 41% of borrowers — would rise by a total of £4.3bn if the MPC was to vote for a rise.

This would climb to more than £10bn when the country’s 6.5m other mortgaged households see their fixed-rate loans expire, with first-time buyers likely to be hit the hardest.

Buy-to-let landlords were also highlighted as being potentially exposed to a £10bn extra borrowing burden.


Speculation filtering through

This interest rate speculation may have already filtered through to many borrowers.

The proportion of customers searching for fixed-rate mortgages on Experian’s comparison site was suggested to have risen to 67.4% in February, a jump from 60.3% in December. And we have also seen heightened remortgage activity within recent days, weeks and months.

Which leads to the question – are borrowers now more aware of interest rate repercussions?

In times gone by there might be the odd headline here and there in the national press which could spark some form of action from borrowers, or at least raise the odd question.

However, thanks to far greater access to an array of information and resources to help them better manage their home, investments and general outgoings – the majority of borrowers are more switched on to their financial needs than ever.


Real money figures

That’s not to say that the professional advice process is no longer valued or that it has become outdated, far from it.

The mortgage market remains a complex one which can often be misunderstood, and sometimes undervalued, by even the most financially savvy.

Headlines and interest rate scenarios will always need to be translated into real monetary figures for all types of borrowers to underline their potential impact.

Short term solutions may be easier to spot but the real value will always come from the medium to longer-term advice and future planning for clients who could easily be swayed by a snippet of information rather than taking into account the wider holistic financial picture.

All this means it is the perfect time to really showcase your expertise and demonstrate to your clients how they can best prepare themselves for any interest rate changes which might, or might not, be in the offing.

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