The year finally begins to draw to an end and 2017 has without doubt been a rollercoaster ride with some notable ups and some questionable downs. The spectre of Brexit hovers over everything we do, but for the present, it’s something of a background presence rather than anything more ‘in your face’. I suspect however that, as 2018 progresses, we’ll truly start to see how the ongoing negotiations, and what comes next, is going to impact on all our businesses.
So, what of 2017? Well, the role of the intermediary appears not to be diminishing in importance however there are clearly a number of potential threats that we must be mindful of. Whether ‘robo advice’ proves to be the significant game-changer that many believe it to be, is a big question to answer, however it’s obviously going to be important to engage with such propositions, and where clients want to engage with you in this manner, to be able to offer such solutions.
In other areas I think we’ve seen some real and meaningful developments, not least in sectors such as later life lending and equity release, which appear to be growing in importance. Lenders are clearly cottoning on to this and advisers too may well need to look at their later life services in order to make sure that this demand is met, and that all potential solutions can be covered off. The regulator might not be showing its claws in this area yet, but I do wonder whether we could start to see some teeth-bearing especially if consumers begin to complain that they’ve been ‘sold’ one product when another was more suitable. A defence of, ‘But we’re not authorised to sell that other product”, may not be deemed enough.
2017 also brought us, what seemed like, the first Bank Base Rate (BBR) rise in a generation – certainly there would have been a large number of borrowers who had never experienced that before, and the notion that rates can’t go up, should have been disavowed.
What impact has this actually had on the market though? Since November’s announcement, the answer has to be, ‘Not much’. Recent figures from Moneyfacts suggest the average two-year fixed rate has only gone up from 2.31%, prior to the BBR move, to 2.34% now. Lenders appear not to have been in any rush to raise SVRs since then either, with average rates only moving 0.14% to 4.74%, showing that many chose not to move rates by the full 0.25% increase.
However, and this probably tells you more about what is happening in the ‘real world’, lenders did spend the period leading up to the BBR move, raising rates. In other words, they anticipated the rise and got their increases in first – dare I say it, this might have been done so because, once BBR did change, they might then be seen to be one of those who hadn’t raised rates by the full amount. Most of the ‘dirty work’ had been done prior to the much-anticipated rise.
Which is a potential trend that both advisers, and their clients, need to be aware of especially if – now one rise has been sanctioned – this means the likelihood of further increases over a shorter space of time has increased.
Now we all know that Mark Carney has suggested further increases will come but they will not be short/sharp rises in the near term, instead he seems to believe that we will only have a couple more moves upward in the next couple of years. However, let’s review the latest inflation figures – CPI rose to 3.1% in November – and while this might be Carney’s aim, there are potentially others on the Monetary Policy Committee who might want to act sooner rather than later in order to try and bring inflation down.
So, in such a world – and anticipating at least one further increase in 2018 – advisers will need to be mindful of product/rate moves prior to any potential increase in BBR. This is important because, we’re led to believe, that a significant amount of mortgages will be up for renewal next year, and therefore the remortgage/product transfer market could be not just highly competitive, but open to large numbers of price changes especially if the lending community decides that a rate rise is imminent. Anticipating this type of movement could save your clients a lot of money over the term of their mortgages, especially if you recommend that action just before a BBR change does take place.
Overall, 2018 might appear to have the look and feel of 2017 about it but I suspect (as always) there will be a number of new developments and changes to the market which will result in an interesting and challenging year. If however we can think smart and ensure our services are at the forefront of consumers’ minds, then there appear to be plenty of opportunities to make the next 12 months very positive indeed.
Richard Adams is managing director of Stonebridge Group