Whether this question is the most commonly asked of advisers can’t be known, but I can guarantee it, or a variation on this theme, will be a regular one fielded by all in the intermediary profession.
Of course it is an incredibly difficult one to answer, nigh on impossible, and there are plenty of arguments to suggest advisers should not go near trying to provide an answer, in case this is taken as fact by those asking it.
That won’t stop it being asked of course. Indeed, in almost all webinars I’ve taken part in for as long as I can remember, advisers often raise the very same question with me.
And this will be predominantly from an equity release/later life-focused adviser audience, where rates are supposed to matter far less, because if the need for funding or finance is now, then the rates are what the rates are.
Looking at this objectively, that should perhaps be the response for all advisers.
You try not to sit on the fence when providing an answer – after all, you’re supposed to be the expert in these matters – however what I always try to focus on is more around what is happening right now, because unless the client does want to ‘wait it out’ in the hope rates will come down at some point, then we all have to deal with the here and now.
The rate reality is what the rate reality is, and judging by the recent mood music floating around our market at present, it is starting to feel increasingly unlikely that we will see any significant shifts in rates – certainly not downwards – in the weeks and months to come.
And that does signal a shift from what I might have thought just a month or so ago. With inflation having fallen, it did appear we would get Bank Base Rate (BBR) cuts sooner rather than later.
The money markets and swap rates specifically appeared to suggest this was increasingly likely, however, once again, there has been a shift in the last couple of weeks.
The last inflation figures were not as positive as we might have hoped, swap rates moved upwards, lenders have followed suit with – albeit minor – price adjustments upwards, and soundings from Monetary Policy Committee (MPC) members are much more cautionary.
In a recent speech, MPC member and chief economist and executive director at the Bank of England, Huw Pill, said that “while we are making satisfactory progress in returning inflation to target…the time for cutting Bank Rate remain[s] some way off”.
Which would suggest Huw is unlikely to be voting for any sort of change anytime soon. Whether other members of the MPC are likely to outnumber him at either the May or June meetings seems somewhat unlikely now, and that much-anticipated first cut to BBR might not materialise until later in 2024.
Or it might not materialise at all. And that is clearly a hugely important factor for advisers of all kinds to take into account, when that inevitable rate question is asked in the weeks and months to come.
We might all appreciate this is a very different rate environment to that which we saw prior to mid-2022, and I’ll be the first to admit it’s taking some getting used to, however we must also recognise that what goes up, can stay up for some time, and there is no inevitability to rate cuts, even if inflation does inch closer towards that 2% target.
Clients – of all kinds – should be warned that hanging on for a better rate might actually mean a worse rate. Think of those who ‘hung on’ from mid-March this year; as I write, a large number of rates have gone up, and we know they could continue to rise, whether for residential, equity release, or indeed any option available to later life clients.
Therefore, when asked what will rates do next, answer with what rates are doing now. And don’t hold back in communicating with your entire client bank, and potential new clients you are marketing to, about what the reality of today’s market is, and how it might be the time to act right now rather than wait for a future array of more competitively-priced products that never come to market.
As advisers, you have to be experts in reality, not what-might-be. Honesty to the client in terms of the options as they sit today will always beat a punt on the future.
After all, clients might want solutions to future problems, or future ambitions and needs, but they are only ever going to be able to secure finance at today’s rates.
Stuart Wilson is chairman of Air Club
