Last week, the monetary policy committee decided to hold the base rate at 0.5 per cent for the 25th month running but it is clear its hand will be forced before the year is out. When – and by how much – it raises the base rate is what divides both the MPC and experts alike. Many predict we will see one or two small rises (by 0.5 per cent or so) between June and August.
Homeowners must act if they want to continue to enjoy a comfortable rate and a big proportion of them would benefit from advice. According to a recent survey by Unbiased, one in five homeowners are unsure what would happen to their mort-gage payments if the base rate increased. Alarmingly, 16 per cent of those on their lender’s standard variable rate have no idea what effect an increase would have on their finances and 17 per cent of those still tied in to a tracker say they think they would struggle financially. Given that mortgage intermediation is so prevalent in the UK, it is frustrating there is still so much consumer confusion and apathy.
Now is the perfect time for our sector to engage in a proactive discussion with clients. Earmark those on tracker and variable rates and keep tabs on existing clients approaching their redemption date. Explain to them how their monthly payments would change if the base rate increased and ask if they would be able to afford their payments. There is great potential for us to generate more business in service of a consumer need. We would be doing the public a favour in presenting a rate shock as a clear and present danger, yet the evidence suggests mortgage brokers are all too often not proactive enough.
Clients that are already aware they need to address their mortgage arrangements will shop around and the internet will undoubtedly be the first port of call. Best-buy tables and comparison tools are great if you have decided you definitely want to find a better rate but typical consumers might want to hear expert and impartial guidance from you more than you think.
Be clear on the economic arguments and product price differentials as the market is more dynamic than it has been for some time. The best-buy tables show there are some very attractive two-year tracker rates available with low (or no) arrangement fees. Although monthly payments on even the lowest fixed rates appear more expensive, it would only take two 0.5 per cent rises mid-term to make a fixed rate with a £500 arrangement fee a more rewarding deal. Consumers do not get that unless mortgage advisers spell it out. For those who do not want to or are unable to remortgage, protection products that hedge against rate increases might be appropriate.
When mystery-shopping some inter-mediaries recently, If I Were You found most do not focus on the likelihood of base rate rises, presumably for fear of appearing partial. I feel we need to use our expertise to help consumers understand the real possibility of a succession of rate rises versus the relatively low cost of protecting against them.
Rob Clifford is managing director at If I Were You