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Make base rate rise work for you

An interest rate rise can bring in new business and also provide an opportunity for informed brokers to demonstrate the value of advice to existing clients, says Drew Wotherspoon

I have little doubt that the pages of this week’s Mortgage Strategy will be full of comments which refer to the rise in the base rate so rather than stand out from the crowd I thought I’d join in.

The first rate rise for two years, and indeed the first movement for a year, was met with surprise from most corners of the financial services industry. While some analysts and economists had predicted a hike in the base rate to keep inflation in check it was widely expected that interest rates would remain at 4.5% for the12th month in a row. Of course, the rise had been mooted for several months and in some quarters it was thought it would come earlier, but the feeling just before the announcement was that the base rate would remain the same.

The Bank of England argued that the pace of economic activity had quickened in recent months and the rise was necessary to curb inflation. Housing figures have been suggested as a catalyst for the increase but as house prices are volatile by their nature, the figures from Nationwide and Halifax did not justify the movement.

But whatever your thoughts on the rights and wrongs of the decision, a movement in rates is always a good thing for brokers. At its most basic, it provides an opportunity to check if clients are aware of the increase and that there will be some movement in their monthly payments, assuming they have tracker deals.

And the new business that inevitably comes from an increased sense of tension among consumers is another positive for intermediaries. At no other time is a broker better placed to help nervous consumers than at times like this.

The rise is unlikely to hurt too many people with moderate mortgages but many readers of this magazine service clients who have mortgages that could hardly be described as moderate. The cost to home owners with 100,000 mortgages will be an extra 15 a month or 180 a year, but this figure obviously increases in line with the mortgage. When we get up to 500,000 we are talking about nearly 100 a month and over 1,000 a year.

This is the time to remind your clients of your value, especially coupled with the news that fixed rates are likely to increase again in the coming weeks. As Jonathan Cornell has pointed out, swaps have been on the up again and this is likely to be reflected in pricing soon. This is another reason to speak to clients and inform them of what to expect in the coming months.

It will be interesting to see what products come onto the market in the next few weeks. Some of us benefited, albeit fleetingly, from sub-4% money but this has now followed the base rate up and does not look as attractive in marketing terms, when priced at 4.24%. Will any lender be tempted to push below this? I suspect not.

The point is that a base rate rise can be good news. If you are positioned correctly and have some market knowledge behind you it is a chance to demonstrate the value of a broker’s advice, which can only be good news for the vast majority of this magazine’s readership.


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