There tends to be a number of staple questions that, all of us who work in the mortgage market, get from those who don’t.
This can be either around the time people are looking to purchase/remortgage/invest, but I suspect there will be plenty of us out there who have certain acquaintances who ask them every time they meet us. Questions such as:
- “What’s the best mortgage product/rate at the moment?”
- “Do you think house prices will go up this year?”
- “What’s going to happen to interest rates?”
For advisers, the first question can be answered if the person concerned consents to a full fact-find and you’re able to run the numbers. The problem is that, at most dinner parties for example, people tend not to want to do that.
The question about house prices is also a moot one – house prices where? In London? Where your friend lives? Across the entire UK? That’s a trickier call and you might just want to send them in the direction of the house price indices – let’s be frank here, there’s plenty of them. Or for a more realistic appraisal, send them online to see what properties sold for over the last couple of years in their locale.
And then there’s the interest rate question. Our fixation with the Bank of England’s MPC and its decision on Bank Base Rate (BBR) can sometimes seem all-encompassing, but it’s often hard to explain to people that there can be a significant disconnect between the rate they have on their existing mortgage, the one they might be able to get next, and what BBR currently is.
A lot of people will see a headline of ‘rates increased’ and immediately think it’s bad news for their finances, despite the fact they may have a fixed-rate mortgage. Also, think of those potential first-time buyers who may look at a BBR of 0.75% and wonder why when they last visited their mortgage adviser, the rate they could achieve was closer to 5%.
Interest rates will however always be a source of interest, especially given the way the Bank of England can use them in order to combat higher inflation, for example, plus it does give us an idea of the strength (or otherwise) of the UK economy.
In that sense, what might we all expect in 2019 – ordinarily, we might perhaps think that the next 12 months would follow a similar path to last; maybe a couple of 25 basis point rises spread throughout the year, in order to push rates back up to a new ‘normal’. But this year looks anything but normal or ordinary and therefore we might truly say that all bets are off.
My view is that, in this first quarter at least, the MPC will be keeping its powder dry. We all know the view of Governor Mark Carney and the Bank in terms of what it anticipates would be the crippling impact of a ‘no deal Brexit’. As we perhaps move closer to this on March 29th, the Bank and Carney will have to seriously deliberate and plan for what it believes could be coming over the horizon.
Interest rates might therefore be one method of stimulating the economy, and we might also have to see some major capital injections to supplement this. In a sense, it could be that we revert to the measures introduced post-Credit Crunch in order to stave off what might be the worst impacts of ‘no deal’.
It may also not be the first few months of the year that hold the most interest for interest-rate watchers, but in the subsequent ones. The read-across any cut or increase – and let’s be honest we could have either or both throughout the year – might have on mortgage product rates is however up for debate.
You might suspect that lenders will continue to want to use all methods in order to secure business, especially when the market is so highly competitive, and when you have falling purchase transactions, and the lenders’ own trade body, UK Finance, suggests this year might be the last to see increased remortgage/product transfer activity for a while.
The importance of securing that business in 2019, and being able to hold onto those borrowers in the years to come, is likely to mean sustained downward pressure on product rates as a method to bring in those customers. This year should therefore remain a highly competitive one – at least in the short-term – which is good news for advisers and clients.
I’m afraid however that, come the end of March, the ability of anyone to predict what might happen next is going to be severely tested. You might well have to tell those friends who ask you what rates/prices might do next, that their guess is as good as yours. These are unprecedented times which might require some unprecedented measures – we might all need to brace ourselves for what comes next.
Richard Adams is Managing Director of Stonebridge Group