In news that will have surprised literally no-one, the Bank of England MPC decided to up Bank Base Rate by 0.5% earlier this month, taking the rate to 3.5%, the highest it has been for 14 years.
As mentioned, this was absolutely inevitable given what other Central Banks have done recently and of course in response to the high level of inflation in the UK, even if that figure dropped slightly this month and might well have peaked.
Time will tell in that regard, but you cannot have inflation running at double digit levels and do nothing about it, even if this seems like the absolute worst time to be raising rates – and therefore many people’s mortgage payments – when the cost of living, and specifically energy and food bills, have increased considerably.
It is a sad state of affairs, exacerbated in my mind by the disastrous ‘Mini Budget’ and the black hole in the public finances as a result of those decisions, most of which have now been consigned to the financial dustbin.
So, where does this leave the mortgage market? Well, clearly tracker rates – which I know have been something of a saving grace for many borrowers in recent weeks – are going to rise, adding further cost to those borrowers who have them.
That said, those who have taken trackers over the last couple of months, I hope will have done so with their eyes wide open, and fully aware of what rate rises would mean to their monthly payments. Even with this most recent rise, many should still be below the fixed-rate levels available recently.
Many of these products do not have ERCs accompanying them which does mean that if we do see fixed-rates coming down in price in the months ahead – and there is a greater expectation of this now once we get into 2023 – then they will have options to move to a more competitive fixed-rate that will give them greater payment certainty.
Which is not to say that the trackers aren’t going to remain a good choice going forward. Expectations are now that BBR will peak at around the 4.5% mark, sometime during next year – potentially in the summer – and if inflation does continue to drop, then there should be scope for BBR to follow.
Clearly, it has not been a good picture for many borrowers in recent months, and there are going to be plenty of existing homeowners coming off their current rates and having to opt for products which are far more expensive than those they have now.
However, the saving grace here is the carnage of the ‘mini-Budget’ was not allowed to be followed through on, and there is some light at the end of the tunnel, and it does not lead to BBR being up (and over) 6% as many were fearing.
For advisers, it will be obvious BBR rises and considerable product changes – both in the last few weeks and what we anticipate seeing in January particularly – will leave many consumers feeling utterly confused about what is best for them.
We certainly saw something akin to widespread mortgage panic back in the Autumn, and while there has been a calming of the waters, it is still a pretty turbulent picture, particularly (as mentioned) for those existing borrowers coming off highly competitive fixed-rates who are likely to be asked to pay more for their mortgage now.
Who knows just how the market will unfurl in January, but many stakeholders I’ve spoken to, specifically advisers, are expecting a huge amount of price shifting and jumping in the new year, as lenders seek to hit the ground running and hoover up the market share required in order to meet – what is likely to be – even greater targets in 2023.
Again, this is hopefully good news for advisers and their clients, but there also needs to be an expectation set from the outset that the likelihood of these borrowers being able to secure rates at near the same levels they did two/three/five years ago is slim. But the only way they’ll get access to all deals available and to be able to seriously compare the PT offer they get from their existing lender, is to use the services of a professional, whole of market adviser.
This year I sensed a real threshold had been breached for many borrowers who wouldn’t necessarily have used an adviser before. Now, it seems like a non-negotiable and I expect advisers to reap the benefits in terms of increased demand, not just for remortgaging, but also the opportunity to secure greater levels of income from each client by servicing all their other needs.
This is an opportunity not to be missed or overlooked. In a year set to be very remortgage/PT dominant, it will be those advisers who provide full holistic advice across all needs that will have the most to be thankful for at this time next year.
Mark Snape is chief executive officer of Broker Conveyancing