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Expected base rate rise may jolt ‘apathetic’ clients – analysis

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  • 02/11/2021
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Expected base rate rise may jolt ‘apathetic’ clients – analysis
Brokers have argued that if base rate rises this week it will offer a golden opportunity to reconnect with their existing client bank, particularly those who are apathetic about the idea of remortgaging.

There is considerable speculation that the Bank of England’s Monetary Policy Committee will opt to increase base rate from its current level of 0.1 per cent, amid growing concerns over the rate of inflation.

While at its last meeting in September the MPC voted unanimously to freeze base rate at its current level, comments from members of the MPC since have pointed toward an increase happening in the foreseeable future. For example, Andrew Bailey, the governor of the Bank of England, last month said that the central bank would “have to act” if the rise in inflation looks to be larger and longer-lasting than expected.

A succession of brokers told Mortgage Solutions that they expected rates to increase imminently, and that such a move would not only offer brokers an opportune moment to reconnect with clients, but may also jolt some borrowers out of their apathy towards remortgaging.

These rates can’t last forever

Stuart Gregory, managing director of Lentune Mortgage Consultancy, said he was expecting an initial base rate rise this week, or at least a clear warning that rises would take place imminently, arguing: “Slow changes so the public can absorb that the wider picture is changing are very important.”

He noted that while many of his clients will be secure from the rise as they are on fixed rates, others who have benefitted from the record low interest rates on tracker mortgages may “begin to think about the future in a slightly different way” as a result of an increase.

Jane King, mortgage and equity release adviser at Ash-Ridge Private Finance, said her gut feeling was that rates would rise by up to 0.25 per cent. She explained: “I think it is time to raise them, but only by a very small amount to forewarn borrowers that these rates cannot last forever.”

Rob Gill, managing director of Altura Finance, said that a “symbolic” rate rise to 0.25 per cent seemed likely, and pointed to the fact that “many lenders have increased mortgage rates already as a result” of the speculation, “so following through with a ‘shot across the bows’ hike seems a sensible move”.

The fact that we are even talking about a rate rise at the moment demonstrates how quickly things can change, according to David Hollingworth, associate director of communications at L&C. He noted that it wasn’t long ago that people were talking about the need for negative rates.

Hollingworth added: “The markets certainly expect to see a rise sooner rather than later now and that’s already feeding through to mortgage rates, as funding costs for lenders climb.” 

Over the last couple of weeks, lenders including TSB, Natwest and Nationwide have announced price hikes. 

It’s good to talk

Brokers agreed that occasions like base rate changes offer a useful opportunity for advisers to reopen conversations with existing client banks.

King noted that she reviews all of her clients’ loans around four months before their rates come to an end, but said “I will probably contact tracker borrowers with no ERCs to see if they want an early review” if rates do move.

Gregory argued that it can be effective for advisers to not simply limit themselves to contacting clients when there is big news. He explained: “We do keep in contact with clients on a regular basis, giving clients early notifications of potential changes in payment rates.”

Gill noted that his firm had already seen an increase in enquiries from clients looking to lock in a longer term fixed rate.

He continued: “This includes clients with penalties on existing mortgages, and those on low trackers who want to fix before their trackers start rising. With rates still near record-low levels and seemingly on the way up, it’s a great time to engage with clients to review their options.”

Dominik Lipnicki, director of Your Mortgage Decisions, noted that his firm was seeing some “urgency” from borrowers on their lender’s SVR in terms of finding a new home loan. 

He added: “We keep in regular contact with our clients and have a dedicated existing client team to ensure that we are here when clients need us.”

Addressing borrower apathy

Gregory warned that borrower “apathy” is a key issue currently in the UK mortgage market. This appears to be borne out by research from Barclays last week which suggested that as many as half of British homeowners have never remortgaged or even investigated their options, despite one in three recognising that doing so could save them money.

Gregory added: “It will take more than one interest rate change for many to realise, unfortunately.”

King agreed that it was “madness” the number of borrowers on their lender’s SVR, suggesting that a “lot of borrowers are quite lazy and don’t bother to review”. She speculated that a base rate rise may jolt them into doing something.

This was echoed by Hollingworth who suggested a rate might “spark some borrowers into taking action”, suggesting they may have become complacent due to “what seemed like never-ending cuts to fixed rates”.

He continued: “However those that continue to bide their time or are waiting to see if rate rises do come to pass may find that they have already missed the boat on the cheapest deals. Those with variable deals will then feel an additional pinch in the pocket as it’s highly likely that lenders will pass through any rate rise to their standard variable rates.”

Lipnicki pointed out that while the message about the importance of remortgaging is getting through to borrowers, the reality is that many simply do not remember a world of high interest rates.

“If, as some predict, we see the return of a Bank of England base rate of three per cent plus, many will be in for a shock,” he concluded.

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