Rob Clifford is chief executive of Century 21 UK and Group Commercial Director at Shepherd Direct Group
Think back to March 2009 – any recollection of what you were doing? Me neither – however I’m pretty confident that around midday many of us would have been digesting the news that the Bank of England’s Monetary Policy Committee had cut Bank Base Rate (BBR) a further half per cent down to 0.5%.
It was the sixth such cut in just six months and was the Bank’s attempt to get some sort of grasp on the financial crisis that was gripping the world at the time.
Five years on and, as we all know, BBR remains at this record low and I can’t help wondering whether, at the time of that last cut, anyone would have predicted how long the position would be sustained.
Given the length of time rates have been at this level the speculation around when rates would be increased for the first time has never really abated.
Even as we are now at the five-year anniversary of that change, and with the introduction of ‘forward guidance’, we are still no closer to knowing when a change might be imposed. Or are we?
Look back at February this year and you would be hard-pressed to find a day when the future of BBR was not being actively debated in both the press and financial circles.
It appears to be something of a Bank of England tactic over the past month to warn borrowers in particular that a BBR rise is on the way with MPC members appearing to point to spring 2015 as the most likely date for that first change.
The question is whether all this base rate chatter does anyone any good particularly mortgage borrowers who are looking to secure finance or to remortgage, and are looking for an educated prediction about what rates might do in the foreseeable future.
My own feeling is that behind all this focus on base rate is a desire on the behalf of the powers that be to see far more UK borrowers on longer-term fixed rate mortgages.
The working assumption is that this provides far more certainty and stability for UK plc if we shift away from having many millions of borrowers on trackers and variable rates who could face difficulty if rates drift or spike upwards. Traditionally borrowers have focused on the monthly mortgage payment at outset rather than explicitly consider the effects of rates rising and clearly in previous ‘crashes’ many borrowers were pushed into arrears and ultimately faced possession resulting from that affordability gap in a stressed scenario.
There now appears to be a little too much fixation on BBR and when it might be increased.
There seems to be an assumption that should BBR be raised this is likely to translate into mortgage rates being jacked up disproportionately by lenders.
I have lost count of the number of ‘get in while you can’ articles and comments that are being bandied about despite it being quite unlikely that should base rate rise for instance to 3%, mortgage product rates will (across the board) rise by exactly the same amount.
It’s difficult to tell how lenders might react to such an increase but recent history tells us that there tends to be a narrowing in the differential between BBR and the typical lender SVR when BBR is at a more ‘normal’ level.
Brokers do of course have an important job to do in this environment, particularly if we are to believe that BBR increases are still over a year away.
A borrower fixated on base rate needs to understand that product rates are always going to be different and despite the market inevitably moving closer to a rise it does not mean that today’s tracker rate is not the most suitable and ultimately competitive one for them.
Indeed, if rates are not likely to move until next year, and then only by a small amount, a two-year tracker may offer considerable value because of the savings that can be achieved pre-BBR increase. I’m not at all sure that a typical consumer understands that, in the absence of a broker’s experienced advice.
You can plainly see why the Bank of England is laying the ground for an increase – after all, five years of rock-bottom and consistent BBR is a serious amount of time and at this point a complacency might have set in that rates can somehow remain this low.
However for advisers and borrowers seeking mortgage finance in this current market there is no need to be overly exercised by changes to BBR. Whenever they might materialise.
In some quarters you sense there may even be a sigh of relief when rates do eventually rise because it will mark the start of a return to ‘normality’.
In the meantime, consumers need to focus on seizing the right deal today whilst being mindful of a future BBR shift, but without putting undue focus on it.
