The effects would be astronomical. If my calculations are correct, With 70% of mortgage loans to households and more than 50% of loans to businesses being linked to base rate, when this baby hits 7% we could see one of two eventualities;
1. A base rate increase.
Or
2. It could create a time paradox, the result of which could cause a chain reaction that would unravel the very fabric of the space-time continuum and destroy the entire universe!”
Granted… two, is a worst case scenario!
Yes, you would be foolish to call Carney “chicken”, as he had no issues abandoning his initial guidance linking interest rate movements to unemployment last week. “Unemployment” and “7%” were becoming as frequently used in mortgage discussions as “fixed” and “tracker”, as most brokers across the UK had been using this as a crib sheet to sell five-year mortgages.
But despite this recent retraction, it seems Carney has been driving around in a rusty Delorean of late, as he insists that low base rates will not cause a housing bubble in the future, and that despite house prices rising, activity remained below historical averages.
It’s true that no mortgage borrower wants to see rates increase, but the talk of a possible rate increase has resulted in many people questioning whether it is time to lock in long term or stay enjoying low marginal trackers. The truth is, none of us own a time machine and no one can predict where rates will be in two, three or even five years. However, as swaps edge up and five-year money has increased in pricing with most lenders over the last two weeks, there is an argument five year fixes have bottomed out.
The majority of us will have been asked “should I lock in long term or take a shorter period fix” to which we all use such phrases as “if I could predict the base rate that far ahead I would be a rich man” (followed by a polite cocktail party laugh) or ” I don’t have a crystal ball but…” (another cocktail laugh!). There is no definitive answer.
Last week, I saw a client whose circumstances fitted something I never, ever thought I would recommend; a 10 year fixed rate. We assessed his situation, we assessed his goals, aspirations, age, career plans, and the right deal for him was the astonishing 10 year, single malt, fixed rate with Woolwich. With 10 years left on his term and retirement forthcoming after that, what would make more sense? Now, come what may…his life and his mortgage will remain the same. No more fees, no more worries or concerns about criteria changes, income multiples, recession, global warming, Armageddon…okay, but you get my point.
Like Carney, we can never go Back To The Future. Making predictions on rates is a pressure we face daily, but for every client the answer to their question of “what would you do?” will be different. If the governor of The Bank of England can get it wrong, so can anyone, but with Doc Carney guiding our future, over 10,000 mortgage products at our disposal, and a market more buoyant than it has been in five years, we can all be a Marti McFly and be our clients heroes.
Are we on the road to recovery?
Roads?
Where we’re going, we don’t need roads…
Lea Karassavas is a mortgage broker at Prolific Mortgage Finance and has over 14 years expertise in the mortgage industry. Follow him on Twitter @Mortgage_Mind
