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Rate expectations

by: Ian Wilson, head of Halifax Intermediaries
  • 22/05/2018
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Keep it simple when explaining interest rates to clients, says Ian Wilson, head of Halifax Intermediaries.


Back in the 1980s, Bank of England Base Rate (BBR) movement announcements meant a flurry of activity.

Lenders pulling rates, intermediaries working late into the night to get their client a deal before it disappeared, masses of new data being inputted across the mortgage market and fax machines on overdrive announcing rate changes.

Some of that still happens but with only one rate rise in the last 10 years, BBR announcement day has become less of an event than it used to be.

fanfare, trumpets, royal salute

No fear of high rates

Many of your first time buyer clients have grown up during this record low and benign interest rate environment and therefore haven’t directly experienced the fear of rising rates. They might not remember the 14% interest rates in the late eighties, and the problems they caused for borrowers, but your older clients are likely to.

But, does it really matter that they don’t have the fear of rising rates in the same way that older borrowers might do?

Fixed rates account for the majority of new mortgage deals taken out (over 80%, according to UK Finance), so it’s not like new borrowers are taking any greater risks and tighter lending criteria mean their affordability is checked like never before.

You don’t want to bamboozle your first time buyer clients with interest rate information and they may not want to hear it but by ensuring they understand what impacts BBR and what that might mean for their mortgage rate, you can help them to make a more informed decision about the type of deal they go for.

Keep it simple

You could explain to your clients that the BBR is set by the Monetary Policy Committee (MPC) and a little about how they decide whether to increase it, hold it or cut it.

The Bank of England offers an easy to understand explanation of the base rate on its ‘Monetary Policy page’ that you could share with clients.

The main message to convey is that when the MPC wants to pull inflation back towards target it considers increasing BBR and it considers cutting it if it wants to increase inflation.

At the moment inflation is running at 2.5%, so above the 2% target set by Government. This means that the MPC will be considering increasing rates and it has said as much over recent weeks and months.


jargon-free, simple, straightforward explanation

What about mortgage rates?

Your clients may wonder what BBR has to do with mortgage rates and again this is complicated, so avoid overloading them with jargon as this could confuse them.

Explaining a base rate trackers relationship to BBR is straightforward, of course, others are less clear cut.

You could simply say that other variable rates – Standard Variable Rates, discounts and capped rates – are broadly linked to but don’t mirror BBR. After all, mortgage lenders have a lot of other things to consider when they price products from their own cost of funding to their targets for the year.

The main takeaway for your first time buyer clients is that higher BBR usually means higher mortgage rates but there is no guaranteed link.

If you decide to broach the topic of swap rates and fixed rates you should probably keep it brief. Simply explaining that swap rates and three-month LIBOR more closely reflect lenders cost of borrowing at fixed rates should be sufficient.

Remember your clients could easily become confused between BBR, mortgage rates, swap rates, SVRs and fixed rates.

Some clients will want as much information as possible but others will just want to know what rate they should take. Be guided by them.


For the use of mortgage intermediaries and other professionals only
If you do not have professional experience, you should not rely on the information contained in this communication. If you are a professional and you reproduce any part of the information contained in this communication, to be used with or to advise retail clients, you must ensure it conforms to the Financial Conduct Authority’s advising and selling rules. Halifax is a division of Bank of Scotland plc. Registered in Scotland No. SC327000. Registered Office: The Mound, Edinburgh EH1 1YZ. Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 169628. Information correct at May 2018.

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