There is panic on the streets of London, Birmingham and pretty much anywhere else you can think of as swap rates suggest yet another rate rise is in the offing. With the Bank of England making the shock decision to raise interest rates in January rather than giving consumers breathing space to clear some festive debt, anything seems possible.
Some lenders have lost the plot, raising fixed rates twice in a single week. Meanwhile, brokers have been frantically trying to stay abreast of developments and keep clients happy.
Home owners have been rushing to take out fixed rates before all the good ones go. And prospective first-time buyers have sunk further into the depths of despair.
But it now looks as if such panic may have been unnecessary. BoE governor Mervyn King is hinting that we are nearing the end of the interest rate raising cycle. He expects inflation to fall quite sharply in the second half of the year, removing the need for further rate rises.
This is excellent news which should produce a calmer environment. But has the damage already been done? Are thousands of borrowers now on relatively pricey fixed rates when they would have been better off with cheaper trackers or discounts?
A glance at best buy tables shows that trackers are better priced than fixed rates, and there is the advantage that when interest rates fall borrowers on these deals will see further benefits.
True, there may be a short-term risk of a further rate rise although King’s comments now suggest that this could be the end of the cycle.
Brokers who are on the ball will have considered their clients’ circumstances and chosen the right deals for them. Clients on tight budgets who couldn’t cope with rate fluctuations need fixed rates and their brokers should have moved quickly enough to secure them one of the sub-5% two-year deals available.
Brokers will inevitably have had clients asking whether they should opt for fixed rate deals but brokers worth their salt will have stood firm if they thought their clients would be better off on trackers. This sort of advice is the reason customers use brokers to arrange their mortgages and they will thank you for it in the long run.
That said, a broker’s role is about more than simply advising on the right mortgage deal. They should have a sound knowledge of the products available and an understanding of the wider market.
They shouldn’t go down the futile route of trying to predict interest rate movements although they have a duty to tell clients on variable rates that if there is a rate rise they will pay more and if they can’t afford to, they need to switch to a fixed rate.
Relationship building and understanding clients and their needs is key. It distinguishes brokers who produce average figures from excellent ones. And if the market slows down towards the end of the year as a result of the recent rate rises, brokers who know their clients well will thrive.