The regular quarterly arrears and possession statistics from the CML have hardly been the most exciting data set over the past couple of years – and we in the mortgage market should be particularly thankful for that. Clearly, any borrower veering into arrears or sadly having their property possessed is a cause for concern, and in that regard we should be thankful for the benign interest rate environment of the last half decade because undoubtedly the stats would be far worse were it not for this. Of course, most lenders have also exercised considerable restraint during that time and borrowers who have been in difficulty recently have without doubt benefited from such forbearance policies.
The result of this that mortgage accounts in arrears of 2.5% or more of the mortgage balance numbered 131,400 at the end of June this year (1.18% of all mortgages), which was a fall on the 138,200 figure three months prior to this, and the 154,900 registered at the end of June 2013. All going in the right direction then. Possession numbers show a similar downward trend – 5,400 properties were taken into possession in the second quarter of this year, down from 6,400 in Q1 and 7,600 a year ago. Overall, this meant 11,800 possessions in the first half of 2014, the lowest number since the second half of 2006.
The big question of course is what happens next? Particularly given we are on the cusp (it would seem) of an increase in Bank Base Rate – when that might be exactly is something of a guess but let’s just say that we will probably all be surprised if we are still talking about 0.5% BBR in June next year. The latest minutes of the MPC certainly appear to show a movement towards a rate increase in the not so distant future with two members already ‘breaking ranks’ and voting for a 0.25% rise at the August meeting. Unanimity of voting has been a given for the past few years so this turn of events has been greeted with surprise and has without doubt seen the likelihood of a rise being introduced sooner rather than later.
How would borrowers cope with a rising Bank Base Rate? Well, if we are to believe a recent survey by Halifax then most appear unconcerned – 51% said as much when asked about a rate rise and the impact this would have on their monthly mortgage payments. No doubt many of these borrowers are already on fixed rates which would not change and most of those on tracker or variable rates would only see their payments rise by a relatively small amount if the Bank were to introduce a 25 basis points increase.
However this would effectively be the start of a move towards a more ‘normal’ Base Rate environment – 3% say – and while I would not anticipate big increases in BBR at monthly intervals, borrowers should probably expect incremental rises over a drawn out period particularly as the economy improves and inflation levels remain below the 2% target.
For those borrowers on tracker or variable rates I fully anticipate such a rise to signal a move back to the remortgage market. Clearly, those who have been on such deals over the past few years are likely to have benefited greatly from their decision but one wonders how keen they will be to sit on such rates particularly if their mortgage costs are a large part of their outgoings each month? We are led to believe that many borrowers are only able to afford their mortgage because of the low interest rates currently available and, it has been suggested, that many could find themselves in trouble after only the slightest of rate moves.
If they are able to remortgage now in order to give themselves more security and confidence in their ability to pay then now would appear to be the time to do this. Many lenders have opted to spend their summer cutting product rates and, no doubt, intermediaries will be able to help many of those borrowers who would like to move to a fixed rate. Remortgaging has been in the doldrums for so long that it is hard to imagine a significant improvement but a rate rise may well be the catalyst for an overdue boost. I would suggest that brokers mine their existing client banks and make contact with those borrowers who could be in this situation, plus market their remortgage services to the wider community. You can guarantee that all this talk of rate rises will be worrying news to large number of borrowers and brokers should be in the perfect position to ease those worries and find a sustainable, long-term mortgage solution for them.
Harpal Singh is managing director of BrokerConveyancing.co.uk