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Inflation worries mount

All the talk this week has centred upon potential interest rate rises following news that inflation hit a 15-year high of 3.1 per cent in March.

Some reports suggest rates could rocket to 6 per cent this year from their current 5.25 per cent level. While predictions for the future vary from economist to economist, all agree that a quarter point rise in May is inevitable.

So what will the effect be on the UK mortgage broking sector? Again, predicting the future can be fraught with danger but the consensus is that demand is likely to be stifled as borrowers, and first-time buyers in particular, are likely to be put off by ever-increasing repayment costs.

Add to that the prediction that the introduction of home information packs on 1 June could also stifle demand, and the second half of 2006 looks like it will make life that little bit tougher for the army of advisers up and down the country.

Borrowers will also suffer from interest rate rises due to the burden of increasing monthly repayment costs that have been steadily rising since August 2006, when the base rate stood at 4.5 per cent, and had been stable for a year.

It is not all doom and gloom, however, as rates are still at an historically low level and nothing like the nightmare years of the early 1990s. However, with borrowers continually stretching their resources to buy their dream home and income multiples rising, interest rate rises could come back to bite the industry.

Many agree that lenders rightly state the income multiple model is an out-dated one and affordability is how suitability for a product is judged.

Yet when you see reports such as that out from credit agency Equifax this week that a third of first-time buyers are borrowing five-times their salary, some believe this gives rise to concern as this is not the group earning more than £60,000 a year with little debt that the five-times salary model is aimed at.

Elsewhere in the market, Hamptons Mortgages managing director Kevin Duffy has quit to take on a new challenge in the industry. He is still mulling over his next move which is likely to be in the intermediary mortgage market at either a lender or a broker.

Duffy is likely to be missed at Hamptons and a successor has yet to be announced.

Technical director and product guru Jonathan Cornell, who is well liked in the market and very adept with dealing with the press, is an obvious candidate but there may be others of a lesser profile that may want Duffy’s job, as well.

Speaking of departures, this will be my final column at Money Marketing as I leave the heady heights of Wells Street in central London today (with a sore head from my leaving drinks last night). You may see my name writing about mortgages in the consumer press over the coming weeks – as long as I see my probation period through, that is!

I would like to thank all the brokers, lenders and press offices that have helped me while at MM – and apologise to anyone I’ve upset, unless they deserved it, of course – and good luck to all for the future.


Rate-rise looms as inflation hits 3.1 per cent

Inflation hit 3.1 per cent in March prompting speculation of a quarter point interest rate rise next month. The Bank of England governor Mervyn King has therefore been forced to write to the Chancellor to explain why CPI inflation is over a percentage point above the 2 per cent target.In the letter, King says that […]

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