As I write, the latest inflation figures have been announced – a rise to 9.1 per cent – and this continued movement upwards is likely to set in train further action from the Bank of England’s Monetary Policy Committee in the form of further increases to Bank Base Rate (BBR). As we expected.
Indeed, given some of the noises coming from Monetary Policy Committee (MPC) members recently, it wouldn’t be surprising to see 50 basis points increases at the next meeting in August, with the potential for more to follow.
This is a situation which, even if much of the inflationary pressure can’t truly be controlled by traditional rate rise measures, is going to see a level of mortgage rate activity we have not witnessed for a very long time.
One of the questions I suspect advisers get asked a lot is, ‘What are rates going to do?’ or ‘What is the cheapest rate, currently?’ These are asked at a moment in time which will determine your answer, but the more fundamental point is that BBR movements can alarm borrowers, which leads to action on personal finances, and leads to demand for advice.
The facts are pretty simple – a benign rate environment isn’t necessarily great for advisers, particularly when it comes to those borrowers who feel comfortable not taking any action. However, as BBR rises and mortgage repricing follows, just how comfortable will it feel to be one of the one million-plus borrowers currently sitting on their lenders’ standard variable rate (SVR)? A figure which makes me feel more uncomfortable the more I see it.
Currently, according to Moneyfacts, the average SVR is now 4.91 per cent – it has edged upwards 0.51 per cent since December – and is the highest it has been in 13 years. Which means that many borrowers will be subject to a far higher SVR than that and again begs the question, why?
Certainly, if you’re an adviser with a client in such a situation you’re going to want to act quickly. That said, many adviser firms admit they are not always as adept at servicing their back book as they are at attracting new customers, but clearly with the direction of travel we are seeing here, the longer borrowers are left to their own devices, the more likely they are going to be paying considerably more for their mortgage interest.
It will not take a genius to work out how punitive an SVR can be to borrowers, and even if new product rates are rising, they are still (for the most part) going to be considerably more attractive than the SVR. Plus, an adviser can deliver certainty around payments to ensure the client knows exactly what they are going to be paying, irrespective of rising rates.
A new situation
We haven’t seen rate volatility like this for many, many years; indeed, I would think there are some advisers relatively new to the profession who have never seen anything like this. However, as mentioned, changes to rates precipitate changes to borrower mood, feeling, need which leads to action, and it makes both consumer and commercial sense for advisers to be providing product solutions right now, particularly to those who can immediately make themselves better off by ditching variable rates.
Recently, Capital Economics moved its ‘prediction’ of BBR up, from two per cent to three per cent. I’m a little more positive but think that ongoing rate increases over the next year or so, will take BBR up to 2.5 per cent. That will be achieved with multiple increases at multiple MPC meetings and advisers need to be prepared to act on behalf of clients, swiftly.
Here are some important dates for your diary – August 4; September 15; November 3; and December 15.
These are when the next MPC meetings take place; the decision on BBR is announced at midday and, with that in mind, it would seem to make perfect sense to have a communication written and ready to be sent to your entire client and marketing database, detailing what the decision is, how it might impact them and what you can do to help.
And if you want to know the provisional MPC meeting dates for 2023 to do something similar you can find them here, because in all likelihood, we could see decisions to move BBR announced at many of them.
We don’t need to predict where BBR will end up to know the direction of travel here; the way advisers help borrowers along this winding road will therefore be absolutely crucial for both them and advisory firms.