"We appear to be reaching a point where the Bank might wish to send a warning message to the population that rates could potentially be increased."
The 5-3 vote was the closest we have seen in many a year, and given the fact that inflation has moved up quite dramatically in recent months, then it is understandable that some MPC members might be considering BBR moves in order to counter this. However, and this is a big ‘however’, we are not really living through ‘stable’ times, and the Governor, Mark Carney, has publically suggested that now is not the time for a rise.
So, why might that be? Well, there are a variety of reasons, with the big elephant in the room being the Brexit negotiations, the simply unknowable outcome of those negotiations and the likelihood that leaving the EU will bring with it some considerable ‘challenges’ for the UK economy. Whatever we might like to think, one suspects that the road ahead – at least in the short-term – is going to be rocky to say the least. Does the MPC want to add to the country’s woes by also upping rates and making it more difficult for individuals, borrowers and companies to service their debt? I doubt it.
But, levels of non-mortgage debt are clearly an issue. Just recently, the Bank of England itself told banks to put aside more capital because of the increase in the levels of consumer borrowing, notably in areas such as credit card balances, unsecured loans and car finance. There is clearly a worry here that levels of debt might reach unmanageable levels – an increase to rates might be seen as a method to curb some of this borrowing appetite, but again how might it impact on the ability of borrowers to service their existing debt?
It’s an incredibly complex situation to find ourselves in, albeit one which is starting from an incredibly low BBR – raising the rate from 0.25% to 0.5% you might think wouldn’t have a startling impact, and you’d probably be right, but I guarantee there are plenty of people struggling on existing rates, and any sort of rise is going to make their job even more difficult.
However, we appear to be reaching a point where the Bank might wish to send a warning message to the population that rates could potentially be increased. There will be those who have never borrowed in anything but a low-rate/falling rate environment, and this clearly abnormal position will (at some point) have to move in the opposite direction in order to get to a more ‘normal’ state of affairs. I sense however that members of the MPC, and particularly Mark Carney, are loathe to move too soon and get this decision wrong, and therefore at the next meeting in August we might still have no change.
Which leaves advisers and their existing mortgage clients with something of a window of opportunity. Because, with the right level of equity, and the ability to meet lender affordability requirements, this is a very good time to secure finance or to restructure it. We all know that the remortgage market is incredibly competitive and the same can also be said for the second-charge sector, which has moved to a position where rates start from 3.73%, and some Master Broker fees have reduced to £295. For those borrowers who don’t wish to remortgage, from what might be a very competitive existing rate, the second-charge option is there, available and should be more appealing than ever before.
In a very true sense, this could be ‘the summer of refinance’, because if the MPC does vote to increase rates in August, or the vote gets ever closer – remember that a 4-4 draw is possible which would leave the casting vote in Carney’s hands – then there will be an inevitability about a rate rise at some point during 2017. At this point, products might become slightly less competitive and you’ll also be fielding more enquiries as clients seek to react. Better perhaps to jump ahead of this particular curve and get the best of both worlds – clients will certainly appreciate this, when/if that vote result delivers the anticipated increase.
