The base rate has an impact on the cost of mortgages, but it can also shape the approach of brokers to their clients.
We asked this week’s Marketwatch panel how they feel about the prospect of rate rises and whether it should or could change relationships with customers?
James McGregor mortgage adviser at Mesa Financial Consultants
With interest rates rising recently it does create a lot of unnecessary noise in the industry.
When advising clients as many variables as possible should be taken in to account, but mainly we advise on clients’ personal circumstances, and not market circumstances.
It is impossible to guess future trends, as most economists prove.
I do not believe a rising environment should be a sole reason to change your approach on advice with clients.
This should have already been a point to discuss with clients and what happens to their circumstances if interest rates do rise.
The biggest problem in the country at the minute is consumer credit and not mortgage interest rates increasing.
Having said this, there are great opportunities for the advisory market when there is uncertainty.
This is when clients need most help and guidance.
We sent an email to every single client that was affected by the rate rise to arrange a meeting and discuss the consequences of the rate increase and how we can manage the risk of future increases.
So I believe it is essentially a good thing for the mortgage market as a whole, as long as it is managed correctly.
Rachel Lummis, mortgage adviser at Xpress Mortgages
We are so used to a low interest rate environment, back in 2005 when I started out as a mortgage adviser the base rate went up to 5.75% before plummeting to the lows we see today.
Moving the BoE base rate from 0.5% to 0.75% in itself, is moderate but it is only the second rise in a decade, so it is significant.
The general belief is we are moving to a higher rate environment and rises will remain modest but more frequent.
Because of the lower interest rate environment and competition among lenders we have seen rates as low as 1%.
Even the higher LTV rates have significantly reduced, much to the delight of first-time buyers who, with rising house prices, have struggled to get on to the housing ladder.
The concern now is, if rates do indeed rise steadily, what will be available when customers get to the end of their fixed rate and need to remortgage to a new product to avoid reverting to their lenders much higher standard variable rate?
For those that got a low fixed rate, the expectation is that low rates won’t be available next time around and to prepare for a possible hike in monthly mortgage payments.
Anyone coming to the end of their deal, needs to be prepared and organised, the search for a new rate should start at least six months prior to the existing rate ending.
The two options to explore, remortgage or do a product transfer with the existing lender.
Preparation is key, if indeed we are in a rising rate environment.
Chris Schutrups, managing director at the Mortgage Hut
Following the interest rise in August, which markets priced in as an almost certainty at 90% chance, we have seen very little change within the market itself.
Consumers are more aware of the chances of interest rates rising, with more borrowers opting to choose longer term fixed rates, such as five years.
Interest rate rises do create more conversations and discussion with clients about the future of the economy and what they see as the bumps in the road.
However, the overall sentiment is that people are not particularly worried that interest rate rises that could affect their affordability when it comes to mortgages.
I think most consumers are thinking about the Brexit negotiations that are happening at the moment and a no deal situation does offer some concern to them.
Coupled with interest rate rises, it does mean that people take a longer term view on how they might fix their mortgage payments.
With inflation running at 2.5%, slightly higher than Bank of England governor Mark Carney would probably like, we may see further interest rate rises down the line later this year.
Overall both the consumer and the economy have been very resilient with referendums, Brexit votes and various other bumps in the road that have happened.
The next 12 months will be interesting but I don’t think many people know exactly how this is going to turn out.
