Stuart Gregory: Low interest rates don't mean better rates
It was interesting hearing George Osborne’s words during the Autumn Statement. I am paraphrasing here but the jist was ‘it’s important that interest rates remain low’.
Now, I fully appreciate that his remit is the wider economy, and not just personal finance, but this proud declaration of keeping interest rates low is, in some ways, leading the general public up the garden path.
It is short term thinking which leads the public to believe they can leave their mortgage as it is and that they will remain unaffected because ‘rates will remain low’.
Sir Mervyn King has been clear in the past that base rate will only rise as and when the economy recovers. As we all know, no one has a crystal ball and Mystic Meg’s disappeared.
It is clear in the mortgage world that the base rate, however, has little direct effect on the pricing of fixed rates – an issue which to my mind never gets enough coverage. In that respect, it is down to us as advisers to explain this to our clients.
They need to be aware of outside influences in mortgage pricing, not forgetting, of course, lenders’ own decision making on pricing once demand increases.
So we have the longer term view in the general economy that base rate will remain low. This, of course, only benefits a particular section of the mortgage market which either has a competitive tracker deal, or a specific reversionary rate linked to base rate, such as with Nationwide or Lloyds Banking Group.
We all know, however, that eventually rates will have to rise, which I feel will trigger more unhappy times for homeowners.
Rising utility bills, which up until now have been absorbed into the static or falling family income because of ‘low interest rates’, will become an increased burden.
Borrowers will approach lenders, or speak to an independent adviser, about reviewing their mortgage, perhaps finding out that their options are limited due to criteria changes on income or interest only repayment ‘vehicles’ (that term always bothers me).
Perhaps the value of their home will have fallen, again reducing their options. Perhaps the attitude of lenders towards forbearance will change. We don’t yet know but more importantly, the borrowers don’t know yet either.
The Rolling Stones seem to have chosen the right single to release in advance of their recent concerts with ‘Doom and Gloom’. You are probably thinking that after reading the last four paragraphs.
However there is lots to be positive about.
When you consider how much fixed rates have reduced this year, it is important that we all start 2013 in the same fashion as we leave 2012. Talk to your clients, remind them about the importance of reviewing their situation.
Ask them if a family member is concerned about their mortgage – let us not forget your strongest sales force is your existing clients
As a group, advisers have been through more ups and downs than Helen Flanagan in a rollercoaster.
What I have learnt most is that you can not predict the future. Make your clients aware they need to take control, and not rely on the actions of others.
Stuart Gregory is managing director of Lentune Mortgage Consultancy