The Group is celebrating its 40th birthday this year.
Stunted wage growth over recent months means it’s looking unlikely that we’re going to witness a base rate hike before next year’s general election. But while rises are unlikely to happen as soon as we once believed, eager savers are rubbing their hands in anticipation, while borrowers are growing increasingly anxious over the impending changes.
The Money Advice Service recently warned that three out of four homeowners have not yet considered how a 3 per cent rate rise would affect their mortgage repayments*. Of course, it is unlikely rates will rise this steeply in a short period of time, but it still serves as a grave warning. Brokers would be wise to start discussing the potential impacts of a rate rise now, rather than waiting for it to happen.
Customers are already confused; and quite rightly so. The conflicting reports we’re seeing in the national press almost daily are doing nothing to help worries over rises. Will rises come next month, or in a year’s time? Brokers could use this opportunity to cement relationships with their customers by speaking to them about impending rises and discussing how they could prepare.
Like Cheshire Mortgage Corporation, most lenders already account for rate rises within initial affordability assessments and we should also be seeing the effects of this year’s Mortgage Market Review in ensuring borrowers are prepared for rises. Despite this, a recent survey from comparethemarket.com found that more than half of homeowners are concerned about the prospect of rate rises and the impact on their finances.
Nailing the basics
Brokers could help their customers by incorporating some simple measures into their business practices. These could include developing contingency plans, educating them on the basics of rate rises and how just a 0.5 per cent increase, for example, could affect them, and providing money saving calculators and advice.
One major concern is that consumers will be tempted to wait until rate rises kick-in to consider their options and make cutbacks on spending. What we don’t want to see is people turning to high interest credit cards and payday loans to cover high repayments and ultimately getting themselves into further financial difficulties.
Knock-on effects
So how will interest rate rises affect financial products and services? It’s likely we will see a shift in lending in the months leading up to rises, starting now. We could see more people looking to remortgage and secure fixed rate finance to make the most of current low rates. Borrowers will be assessing their current deals to ensure they’re getting the most favourable rates for their personal circumstances – remortgaging could potentially be a large growth area. We could also see people looking to purchase property before prices rise, and as a result see the use of shorter term finance products like bridging loans increase as borrowers look to secure finance before their own sale has completed.
Hardest hit?
It is hard to say exactly who will be hardest hit by rate rises. Existing homeowners could find that their repayments become unaffordable and many may not have sufficient equity or income to switch their mortgage to a better deal. There’s also concern over the property market and the fact that first time buyers could be frozen out of the market as they’re simply unable to afford repayments.
It’s clear to see we’re currently in a market full of ‘ifs’ and ‘buts’. Following a number of years making the most of low interest rates, borrowers could be facing a nasty shock next year unless they’re fully prepared. Brokers would do well to consider speaking to their customers now and discussing the impact of rate hikes.
