You have to go back almost three and a half years to find the last time the Bank of England put Bank Base Rate (BBR) up, which is perhaps why there was so much ‘excitement’ around the potential for a move earlier this month.
Back in August 2018, BBR was increased from 0.5% to 0.75% and I think at the time there was a widespread belief that the upward trend would be in place for a number of years to come as the UK economy got to grips with the decision to leave the EU.
That was obviously before the pandemic however, and we now find ourselves in a very different place, albeit one where rising inflation is driving the attention on BBR and a consideration of when, rather than if, it is increased.
Many thought November would be the time but that’s not the case and, whatever your view, with every month we seem to be edging closer to a rise and the markets appear to be almost unanimous in their view that December will see an increase to 0.25%.
For us in the mortgage market, what will this mean? Well, perhaps in the grand scheme of things, not a great deal, although we should probably prepare ourselves for the fact that the best rates of the past few months will not be available post-rate rise. Indeed, we are already seeing those rates being inched upwards particularly at lower LTV levels.
However, what a rise – or even the anticipation of one – should do is focus many more borrowers’ minds on whether the time to act is now. After all, at the recent Budget the suggestion was that inflation would continue at very high 4/5%-plus levels throughout 2022 which again leans towards further increases to BBR.
We could be having the same conversation in March/April or September/October next year, that the low rates of the previous few months are going to shift upwards again. The market will still be ultra-competitive because of the competition and the push for more business, it’s just that rates won’t be at the very lowest levels of Autumn 2021.
That message of ‘Act now’ does become somewhat more complex when you add in the options available to existing borrowers looking to refinance, particularly when it comes to Product Transfers.
We all know that lenders like Product Transfers, particularly if it means they don’t have to pay a procuration fee to the adviser, and even if they do, most tend to pay a lesser amount anyway. That PT lender focus will not stop and will harden in an environment where BBR starts to inch up and lenders feel they can secure more existing borrower business direct.
Now, of course, we absolutely accept that for some existing borrowers the PT will be the most suitable option, but not all and it’s important advisers don’t take the line of least resistance with a PT, especially when it might be possible to get the client onto a better deal via a remortgage.
There could be an element of shooting yourself in the foot here because, as mentioned, PTs can mean half the income (or even the loss of all of it), plus a full remortgage advice service can often throw up a number of other needs and opportunities that might not be fully explored if a straight PT is chosen.
At a time when more borrowers should be looking at their refinance options – Barclays recently suggest that half of all borrowers have never remortgaged – and when product rates may be inching up but are still highly competitive and could mean a significant monthly saving, what we don’t want is advisers to miss out on the full income available from servicing the needs of these customers.
Advisers haven’t had a ‘Base Rate increase’ message to push out since mid-2018, and that should be capitalised upon, but let’s not throw this particular baby out with the bath water by encouraging a PT for sheer speed when other remortgage options are more suitable and, quite frankly, are likely to generate more income and opportunities.
The time to remortgage is likely to be here for many clients and it’s a remortgage communication strategy, rather than a PT one, that is likely to be best for all parties.
Jo Carrasco is Business Partnerships Director at Stonebridge