They may be a massive influence on everything and anything but writing about interest rates at the moment, on the surface, may not seem that stimulating. ‘Bank leaves rates on hold again’ reads the BBC headline, announcing a decision most predicted weeks ago. The facts don’t lie – just one rate change since October 2004 – and while this may not provide interesting copy for your average ‘journo’, the stability within the economy is surely a good thing.
Yet, bubbling under the surface, the debate over the Base Rate is still very much alive with mortgage intermediaries and the industry in general. Many are willing to speculate on future movement but what would brokers like to see in the coming months?
Adrian Kidd, IFA at Mint Financial Services, says: “The fixed rate market shows the precarious situation the market is in. They are very volatile at the minute and often rates are being pulled not long after they’ve been introduced.”
Rising swap rates may be behind much of the activity around fixed rates but the overall housing market remains generally upbeat and a number of brokers even believe a rate cut now would actually do more damage than good. Andy Pratt, chief operations officer at Alexander Hall, says: “If there was a rate change now, we could set the market back a couple of years to when there were dangerous levels of growth. Growth is currently steady and this is helping the market.”
Quick cut?
So with this in mind, why do most intermediaries seem to advocate a cut? Tony Catt, a sole practitioner, explains: “It’s always better to have lower rates so people have the choice whether or not to spend money. Fears over house prices will always even out as people can’t afford above a certain limit. A cut would also be a way of bringing first-time buyers (FTBs) into the market as people only have a certain amount of capital and lower rates would allow greater freedom of movement when it comes to borrowing.”
A very fair point but wasn’t there a growing number of FTBs in the market in December? Of course, we have to consider the old adage: ‘Lies, damn lies and statistics’. Kidd says: “There seems to be a lot of conflicting data at the moment. The Nationwide house price survey will say one thing then the Halifax will say something else, and a rate change will seem likely one day and unlikely the next.”
But does the housing market need extra help? House prices are still rising – albeit slowly and with regional variations – given extra impetus by a lack of supply to meet demand, and lenders’ borrowing levels are also rising to help meet these higher prices.
Borrowing levels
However, it is the amount we’re borrowing, both residentially and personally, that is causing the most concern for brokers. Alec Ruthven, director at AM Ruthven & Associates, says: “There seems to be a lot of concern about the high amount of personal debt people are accruing and there are worries that people will start defaulting on their mortgage payments.”
Paul Smith, director at Provident Solutions, concurs: “We’ve noticed in the last few weeks that secured loan business has gone through the roof as people look towards debt consolidation after the festive season. Also, when I’ve been speaking to FTBs, if you go back a few years they were starting with 5 per cent deposits but now they have no deposit and large credit card debts. If rates do go up, there will be trouble.”
Any future upturn in rates could mean these borrowings may become millstones around clients’ necks. Catt warns: “Just 0.5 per cent would tip many people into oblivion and then, with high levels of personal debt, we could see a price crash which would make the late-1980s look like a picnic.”
Wider economy
The potentially devastating impact of spiralling personal debt also bleeds into the debate over the health of the wider economy, for while the housing market has remained strong, it seems other areas of the economy could do with a shot in the arm.
Kidd says: “At the moment there’s an unbalanced economic picture in terms of the housing market and other areas of the economy. Retail sales look like they will be poor for January as consumers seemed to have tightened the purse-strings in the last two or three months.”
Catt adds: “The high-street needs help and it now seems the only way to do that is through interest rates.”
So with this in mind, do brokers see rates coming down in the near future? It seems, much like Christmas, there is a big difference between what people want and what they’ll get.
Ruthven says: “Currently, we are doing a lot more business than we expected, so I think rates will probably stay exactly where they are for the next six months or so. The high-street is complaining but with house prices rising steadily and the stock market doing well, we may get a 0.25 rise later on but otherwise it should be fairly steady.”
David French is a news reporter at Mortgage Introducer
