If the last couple of months have taught us anything, it’s that nobody has a crystal ball, and what perhaps was shaping up to be a relatively benign year – as we hopefully moved further into a post-pandemic landscape – is now anything but.
The conflicting array of events, issues and forces that challenge and shape our economy have been intensified by the Russian invasion of Ukraine, which makes this year look very difficult in many ways.
Everything of course pales into insignificance given what the people of Ukraine are going through, and the events there will undoubtedly make their mark on our world for years to come.
At our recent Annual Conference we held a session on the existing trends and future outlook for the UK mortgage/housing markets, and it was clearly instructive to hear what a number of experts had to say in this regard.
David Smith, the economics editor of the Sunday Times – a regular at our conference – gave an illuminating review of where we currently sit, and where we might be heading, especially against the backdrop of Ukraine, what this might mean for the energy markets, and how this might continue to fuel rising inflation throughout the rest of the year, and beyond.
Interest rates are always going to be a topic which our market is deeply interested in, especially now we have had three consecutive rises in Bank Base Rate (BBR) by the MPC, with the likelihood that this will happen multiple times again over the course of the next 18-20 months.
David believes the existing range, which BBR has been in for over a decade, will now be broken out of, anticipating it will be increased to 2% over the course of the next two years as the Bank of England seeks to bring inflation down.
What was however interesting in that regard is the historical comparison between a 2% BBR now, and where rates have been previously. Something we were reminded of was that, up until 2009, BBR had never been below 2% and it was only the huge and significant events of the Credit Crunch, then Brexit, followed by the pandemic, which took it to the levels we have been living with in recent times.
Why is that important? Well, I think it couches interest rates in terms which should not be overly scary to your clients and borrowers as a whole. Of course, you will be dealing with large numbers of clients who have never been active in the mortgage market with a BBR of 2%; indeed, you might be an adviser who has never worked in such a rate environment.
That suggests to me we have been living through unprecedented times, and that a move back towards a more ‘normalised’ base rate level is not as scary as some might think it to be.
No doubt you will have seen increasing correspondence from borrower clients lately who have seen the rises, who have heard the talk about more on the way, and been worried that this represents the thin end of the wedge in terms of rates going up and up, perhaps back to 4-5% and therefore pushing their payments up by a significant margin.
Hopefully, this historical information can be imparted to them to show this is unlikely, and not a major cause for concern, and that if it does the job of getting inflation levels down quicker, then that is going to be useful for all, because clearly inflation of 8-10% is not good for anyone. The quicker we get a handle on the cost of living crisis, the better.
Overall, BBR might continue to rise, but given the competition in the market from lenders, the money they have to lend, and the appetite to lend, product rates should not ‘sky rocket’ as some might believe. There is still very good value to be had at all LTVs; indeed higher LTV product rates have been dropping recently, even as BBR has risen.
Rate movements are always likely to bring out concerned borrowers, but again this presents an opportunity for you to quell any worries and to place them in products which are good for them now and over the next few years. A lot will happen over that time period but you will certainly be thanked if you can provide stability for their mortgage payments.
Jo Carrasco is business partnerships director at Stonebridge