Helping borrowers as higher rates loom

22 March 2010

After a period of low interest rates the Bank of England base rate is predicted to start rising in Q3 or Q4 2010.
Money markets are pricing in a 0.25% rise within six months, with a second and possibly third rise within 12 months.

Money markets often get forecasts wrong but this time the only way rates are likely to go is up, so the big question is when.

Swaps indicate a significant rise in interbank rates over the one to two-year timelines to between 2.5% and 3%. Predicted interest rates then return to an equilibrium level of 4.5% to 5% over the five to 10-year timelines.

While this sounds gloomy it is likely that after the election interest rates will start to normalise, which could be good news for brokers and IFAs.

Borrowers have had it relatively easy in terms of mortgage payments and will no doubt seek advice when they are threatened with higher payments.

I like Stroud & Swindon Building Society’s recently launched cap and collar deal. This product area is likely to become increasingly popular in the next six months.

So this seems like a good time for brokers to be speaking to their clients to ensure they have a strategy in place for when the inevitable rate rises come.

While none of us know for a fact what is going to happen it’s possible to plan for a number of scenarios and help borrowers prepare for the future.

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