Will a rate rise setback hinder the remortgage resurgence?

When it comes to bank base rate and mortgage product rates in general, it's fair to say that the level of interest (if you'll pardon the pun) is high.

Steve Harness
4th February 2016
Steve Harness, the Loans Engine

Indeed, you might even go so far as to say that the lower BBR is, the greater the level of interest in terms of when we might see that move upwards. Judging however by the start of the year, in particular the pronouncements of various Monetary Policy Committee members and Mark Carney himself, that first rise is not as close as we might have anticipated at this time last year.

2015 was supposed to be the game-changing year for BBR and as we motored through the first six months in particular, there appeared to be a certain kind of inevitability about an increase being announced. However, this clearly did not materialise; in fact, the chances of such a movement became slimmer as various world and domestic economic circumstances conspired to put that decision on the back burner.

Now we find ourselves, just weeks into the new year, with talk of a rise being noticeable by its absence. Just recently, one of the newest members of the MPC, Gertjan Vlieghe, suggested we should not anticipate “the future would look like the past”, essentially outlining that we could be in for a period of very low interest rates for many years to come. Indeed, even when a rate rise has been mooted, Carney himself has been quick to say it would take a long time to get to, what might be described, as a ‘normalised’ level. If we are to believe Vlieghe then our view of what a ‘normalised’ interest rate picture might also have to change.

So, what does this actually mean? Well, for a start, thoughts of a rise in BBR during 2016 appear to be disappearing. It’s not to say it won’t happen but the mood music definitely appears to be playing a different tune. This continued low rate environment might not however be music to the ears of those who predicted a resurgence in remortgaging. And undoubtedly a BBR increase would give that particular sector a real boost because there appears to be a direct correlation here – we only have to go back to Carney’s comments at the start of the Summer last year about how borrowers should prepare themselves for an imminent increase in rates in order to see the impetus this gave to the remortgage market.

Now, without that impetus, the remortgage market could remain flat. Which of course is not to say that existing borrowers don’t want to release equity or want to secure additional finance. But, if they are on highly-competitive, market-leading, perhaps lifetime BBR tracker, first-charge mortgage rates already, are they really going to want to remortgage away from them? The answer over the last few years has been no, and nothing leads me to believe this is about to change.

So, what are the options? Well, in the new post-MCD, level-playing field environment, the second-charge mortgage option may well look even more attractive. And of course, advisers are going to need to – at the very least – have a working knowledge of the second-charge option, why it might be more suitable, and where clients can be placed in order to secure one. This will be an incredibly important part of the advice process for those existing borrowers who have no desire to move off their current product rate, but still want to release equity for renovations, or the whole host of reasons why people refinance.

In the great scheme of things, we could be months, perhaps even years away from a base rate increase, but we are only six weeks away from the MCD. Savvy advisers will need to ensure their clients are presented with the full range of options when it comes to refinancing and this has to include second-charge options. Indeed, first-charge advisers who want to keep calling themselves ‘independent’ have to provide advice on seconds in order to be able to keep that badge of honour. There are other options of course alongside providing the advice and packaging it themselves, or using a business like our own to do that job, or simply using us to package. The pleasing point here is that, in any interest rate environment, this is a problem which has a number of solutions to suit both adviser and client alike.

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