The remortgage renaissance

Rob Clifford is group commercial director at Shepherd Direct which is a shareholder at CENTURY 21 UK, Moneyquest and Stonebridge

On the morning that I write this, the Centre for Economics and Business Research is widely quoted in the press for its latest interest rate prediction.

Due to what it describes as a gloomier outlook for the world economy, the CEBR is now suggesting that Bank Base Rate is more likely to rise in either May or August next year rather than February as it had previously predicted.

Essentially, it believes the economic mood music has moved into more of a minor key in recent weeks which means that the ‘inevitable’ interest rate rise date also moves further into the future.

Although perhaps use of the word ‘inevitable’ isn’t necessarily the right one because to say that the general public are confronted with mixed messages when it comes to BBR would be something of an understatement.

Take for instance the Governor himself, Mark Carney, who appeared to spend most of the early summer months suggesting that the first rate increase would be sooner rather than later, and that borrowers in particular should ready themselves for this, possibly before the end of 2015.

Interest in fixed rate mortgage products ticked up overnight.

Fast forward to now and the chatter is somewhat different, to such an extent that we seem to see the chief economist at the Bank, Andy Haldane, going in completely the opposite direction.

Haldane suggested that influences such as an economic fall-off in China, for example, and the impact this would have on the global economy meant it was now more likely that the Bank would have to be in fully-fledged protectionist mode when it came to the British economy. This could mean a further cut in rates from their current 0.5% level and we could be forgiven for a collective scratching of heads from the UK public on this one.

It all seems a long way from the ‘forward guidance’ that Mark Carney planned to bring in and the measures that would need to be hit before any rate rise would even be contemplated. Indeed, the whole process and the various mutterings of just about every single MPC member only add to the overall confusion rather than delivering a greater level of certainty which many had expected from the new regime.

This somewhat schizophrenic approach to interest rate discussions is shown to be even more damaging when we take into account how borrowers anticipate dealing with an ‘inevitable’ rise. Recent research from the Building Societies Association suggests more than half ‘will struggle or fall behind with mortgage repayments’ when BBR is increased, while a tenth said they would experience ‘real financial problems’.

With this being the case you would think the Bank of England and the MPC itself would be operating far more of a ‘collective responsibility’ approach to their public utterances, however the nature of its ‘independence’ doesn’t seem to be working in this way.

It all means that we have a very exposed existing borrower community in the UK who are being pulled from pillar to post in terms of trying to understand where rates might be going, how this might translate to product pricing and when is likely be the right time to not just look at their existing mortgage, but perhaps look to move.

It’s widely known that Carney’s early summer indications injected life into the remortgage market as many borrowers came to the conclusion that now was a good time to make a move, often to a fixed rate as I’ve mentioned above. Indeed our Moneyquest business saw fixed rate enquiries jump by 22% in that period.

This is undoubtedly what the Bank wants to see – more borrowers on non-administered mortgage products, mitigating the risk of payment shock. However, with talks of rate cuts, or talk that rates are likely to be on hold perhaps for another year, there will be those borrowers who are more content to stay put or indeed move to a variable rate which does nothing to stave off the risk of financial difficulty when rates do move upwards.

All in all, it feels like a very unsatisfying situation at present and one that offers little comfort o those currently considering their mortgage options. The good thing for advisers is that they are very well placed to provide that confidence and certainty to their client base.

Now would certainly be the time to be contacting existing borrowers to talk through the situation and, let’s not forget, to outline what is a very healthy and competitive mortgage market for those who are able to meet affordability assessments.

The remortgage renaissance need not recede anytime soon, indeed with a proactive advisory community it should sustain and gain momentum at least until that rate rise announcement is eventually made.