Moneyfacts.co.uk reports that two and five-year rates have seen the largest month-on-month rise on record in July, increasing by 0.49 per cent and 0.52 per cent, to sit at 3.74 per cent and 3.89 per cent respectively.
At the time of writing, the average two-year fixed rate was 1.40 per cent above the December 2021 figure, and the average five-year fix at its highest since November 2014.
The Bank of England’s next base rate decision in August is highly likely to be an increase, with costs passed on to customers and borrowing becoming more expensive across the board.
Experts say the average five-year fixed rate is likely to rise a further 0.3 per cent this year, and continue to go up through to 2024 at least, though there are some dissenters who suggest that mortgage lenders may buck the trend and offer lower rates on new deals.
Although specialist mortgage rates are rising rapidly, it is worth noting that – with two-year fixes available, at the time of writing, from some lenders at rates as low as 2.89 per cent, or five-year fixes at 3.09 per cent, for example – we are still living in a historically low-rate environment.
Previously subject to a significant leap in rates compared with its mainstream counterpart, the specialist market has taken considerable strides to close the gap and become much more affordable. This comes alongside broad product choice, innovation, quality service and competition – all of which make an advantageous environment for the borrower.
Even as we look ahead to the prospect of rates rising even further across the board, the competitive nature of this market is not going to abate any time soon, which will help moderate the impact and keep rate increases in check to a certain extent.
Rising rates naturally put downward pressure on affordability, which could derail the plans of some of your clients who might be looking to capital raise with a remortgage, especially if they are self-employed and saw an income reduction during Covid.
This is an area where working with a specialist lender could help as many have criteria that enable them to consider the latest year’s accounts for a self-employed applicant, while there are also options for directors who choose to retain profit within the business rather than draw it as salary and dividends.
In order to keep up with the increased cost of living, many people are choosing to work more jobs and the number of people earning income from multiple sources is on the rise, and this is another area where specialist lenders can help.
The rising cost of living is also creating a complicated financial picture for many borrowers, and there is likely to be a steady stream of demand from those who find it hard to pass through the strict algorithms employed by high street banks.
Pair this with human underwriting, fast turnaround times, and the ability to take a common sense, service-led approach to deals and the borrowers behind them, and specialist lenders may well have the answers for many who are on the hunt for their dream home or looking to make the most of their remortgage.
Take action now
While the picture is not all negative, the fact is that borrowing is going to become more expensive the longer clients leave it. So now is the time to brush up on your knowledge of specialist lenders and their criteria, make or grow your connections with industry experts, and – most importantly – reach out to clients to discuss the options available to them outside of the high street.
It is vital to have these conversations as early as possible to avoid missing out on current rates and getting hit with painful price hikes down the line, at a time when cost-of-living challenges are only going to make the pinch that much harder.
There are also myriad other options out there – such as second charges for capital raising or debt consolidation – for those who want to make the most of specialist lending in order to help alleviate pressure and cope with rising costs.
If in doubt, the experts at Brightstar are always ready to discuss the different product areas that could provide a solution for your clients and help you to help them make the most suitable choices in this rising rate environment.