Everyone’s obsessing about when the base rate will rise.
Don’t get me wrong, it’s a crucial piece in the puzzle and matters enormously if we’re to sustain a healthy-ish economy and get back on the path to growth.
But trying to second guess the month the Bank of England will take the plunge is best left to the economists.
For intermediaries, the waiting game is an opportunity to help get mortgage borrowers into the best circumstance possible to deal with the rise when it comes.
Rising interest rates matter most to those on lenders’ standard variable rates who are at the mercy of even incremental rises.
Lenders have recognised this and their products reflect it. No longer do borrowers have to choose between tracker and fixed rates only.
Perhaps driven by borrowers’ reluctance to fix and take the pain of much higher monthly payments when the Bank of England still seems so undecided about what they’re doing, let alone when, lenders appear to be compromising with borrowers.
The drop lock mortgage, also sometimes called the switch and fix, allows borrowers to make hay while the sun shines on interest rates, tracking the 0.5% base rate but put up the umbrella (bear with the analogy) and switch to a fixed rate when the thunder clouds start to gather.
Woolwich and Abbey both offer this type of deal and Yorkshire Building Society announced this morning it’s offering direct borrowers the chance to track for the moment and then fix payments at no extra charge when they think the base rate looks likely to rise.
Brokers know these options are available but borrowers don’t always understand their relationship to the mechanism of interest rate changes.
Whether the sun stays out and keeps base rate low or thunder clouds gather, telling your clients there’s a halfway house is another argument for the remortgage armoury.
