The last time there were four base rate changes consecutively was between December 2008 and March 2009. That was in a decreasing base rate environment, which is certainly more palatable for customers seeking to change their mortgage than the rising interest rate environment we now find ourselves in.
The base rate has increased by 5.15 per cent in a relatively short period of time to 5.25 per cent, and market commentary indicates potential further base rate increases this year. The last time we had a base rate at more than five per cent was October 2008, almost 15 years ago.
Watching the market
Swap rates have been an early indicator of what was to come with the base rate. Swap rates reflect the market cost for wholesale mortgage borrowing for lenders, so as these costs rise the mortgage rates on offer to mortgage clients have also increased.
As a result, the majority of customers maturing from a fixed rate this year will experience an increase in their mortgage payments.
We have also seen the inflation figures having an impact on swap rates and, as a result, lender mortgage rates. The inflation figures do not necessarily correlate with the Bank of England base rate and there is certainly a case for those working in the mortgage industry to continue to pay close attention to when the inflation figures are announced, to see what impact it has on what their clients and customers pay.
Differing circumstances
The impact of this will be greater for some than others.
We tend to think about those who have larger mortgages seeing the biggest impact of the rate increase. However, that does not consider those who have potentially had a double impact, for example those who have seen service charge increases, Help to Buy loan repayment increases, shared ownership rent increases and ground rent increases, which can further strain finances for borrowers.
The new government Mortgage Charter, which of the majority of the mortgage market has signed up to, seeks to reduce some of the impact to borrowers by allowing them to apply for interest-only for six months or extend their mortgage term, however these options may lead to the borrower paying more over the total term of the mortgage.
As most processes are execution-only, it is important brokers give good direction to customers before they take the decision to defer capital payments and opt for interest-only or extend their mortgage term.
The uncertainty created by the current cost of living concerns, rising interest rates and the subsequent impact on mortgage affordability assessments under the rules set out by the Prudential Regulation Authority will continue to drive demand for professional, independent advice.
Three key ways to help clients
Now, more than ever, customers will continue to rely on mortgage intermediaries.
Yet, in this challenging environment, here are three tips as to how can we help our customers in this difficult time:
Check the offer expiry date and product completion deadline
In the current environment, make the customer aware that if they’re unable to complete their mortgage by these deadlines they must be prepared to potentially pay a higher interest rate. It is also important to watch when rates reduce to ensure customers have the best offer, as rates could rise or fall over the next six months.
Get the application right first time
Where a subsequent change is made to an application already submitted, if a lender has changed their affordability assessment criteria in the interim, the customer may not be able to borrow as much. For remortgage customers, seek to get the valuation right first time as down valuations can lead to customers getting higher rates.
Encourage your client to speak to their lender if they’re worried about their mortgage payments
For existing mortgage customers who are in financial difficulty and need specialist support, please advise them to call their lender, the earlier they get in touch, the better. To deal with this on the customer’s behalf, some lenders may require a signed letter from the customer giving authority for their mortgage intermediary to act for them, or for the customer and intermediary to be present on the phone call.
