The past few weeks have been busy for those who comment about mortgages in the national media.
It all started with the non-announcement from Abbey that it would be lending 5 x income. We then moved onto the spectre of 50-year home loans – déjà vu for John Charcol as we ran the same story some four years ago, at the time of the World Cup in Japan. Most recently (at least at time of writing) came the news from the Monetary Policy Committee that was raising rates to 5%.
Unlike the rate rise in August which came as something of a surprise to most people, it would have been more of a shock if rates had been left on hold this time. This was the most widely anticipated increase for a long time.
The resulting position of 5% is the highest that base rate has been for five years. This further hike in rates suggests that when the Bank of England’s quarterly inflation report is published soon it will reveal that the BoE considers the risks on inflation are still on the upside.
The rise we saw three months ago appears to have had little effect on the housing market although there are early signs of a slight slowdown. August’s rise had little effect on spending or confidence but this second hike will soon put paid to that.
We published some research recently that showed the collective amount of money borrowers are wasting by languishing on expensive standard variable rates – a total of £43m. Hopefully this additional rate rise will spur some of them into action. After all, a half point rise will have a big effect on some people’s payments. And with the money markets expecting another rise in three months’ time it would be foolish not to act now.
For brokers, the latest rise provides another chance to contact clients old and new. The media coverage I mentioned earlier on a range of subjects will no doubt have placed mortgages at the forefront of many people’s minds so they will they be prepared to do something about rising rates.
Looking at the market from a purely psychological point of view, many len-ders will have SVRs of 7% and above. That is a bigger number than we have seen for a long time and there’s something about tipping into another whole number that might make people react. We will have to wait and see but I think they will.
In conclusion, it’s worth mentioning that anyone who is coming off a two-year fixed rate will be in for a nasty shock. They could conceivably move from payments of just over £500 to £875. Ouch.