While no one can say for sure when the base rate will rise, the latest projections suggest the first increase may not come until the second half of 2014.
The eurozone crisis and US interest rates will affect this, but even when the base rate does increase, it will do so very slowly.
The problem for mortgage clients is that economic forecasters change their predictions frequently, and by the time most people realise a rate rise is imminent, the mortgage market will have already reacted and increased its own rates.
So, how will the recent changes to some lenders’ SVRs affect your clients? The SVR of the top six lenders is currently between 3.89 per cent and 4.24 per cent – still low compared to certain lenders. Unlike a tracker, an SVR is set arbitrarily by each individual lender, so the rate might not be stringently linked to the BoE base rate. Over a million mortgage clients will see their SVR rise in the next couple of months, so now is the time to act.
As well as security in payments, there are savings to be had by switching to a fixed rate deal. Some clients won’t even see a big increase in payments if they move to a fix, as a number of deals are below the SVR levels of lenders. As interest rates are unlikely to do much in two years, it makes sense to fix for longer, and several lenders are offering very attractive five, or ten year fixed rates. A fixed rate deal that expires in two or three years’ time may mean clients need to re-mortgage just as interest rates start to rise, and more mortgage switching involves more fees too.
If your clients want to stay on a variable rate mortgage, consider switching to a tracker. Unlike an SVR, a tracker is pegged to the base rate – so doesn’t leave borrowers open to the ‘whim of the lender’. In addition to more rate transparency, trackers are also currently slightly cheaper than the best fixed deals. You should check to see if the tracker has early repayment charges (ERC) or other options should the client wish to change mid term. Recently, some lenders have introduced products with an option to switch to a fix rate without penalty, although another arrangement fee may be required.
While locking into a fixed rate may be slightly more costly than a lifetime tracker right now, for many it is a price worth paying for the peace of mind from knowing what their payments will be for the next few years. However, as with any mortgage deal, the rate depends on how much equity the clients have – those with 25 per cent or 35 per cent will get the best rates.
Whatever rates do, your clients will be looking to you for advice, so while the national press has recently focused on the negatives of these SVR rises, brokers should be celebrating the opportunities this may bring – with a reason to contact their client database and discuss any remortgage options.
In certain circumstance advising some clients to take new product with their existing lender can be in the ‘best interests’. Even if the lender doesn’t reward you with a retention fee, you are more likely to retain the client and possibly earn from a cross-sale now or in the future from a satisfied customer
