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Prisoners Of Fortune


As the Bank of England Monetary Policy Committee, (MPC) sat and argued their very different views around potential interest rate changes, many in the mortgage industry pondered secretly, some publically, that quite frankly an early rate rise will be good for business.

After all, nothing is better than panicking people into action than a short, sharp shock.

The truth is that it might not be quite that simple and could provide as many problems as it solves. For many consumers, a sudden half point rise could prove to be the tipping point, especially if it is followed by another one or two increases later on in the year as predicted.

Leaving aside the fact that I believe rates should rise slowly and steadily to help manoeuvre us into a better position to stave off the longer term inflation threats, it is true that a rate rise in May will prompt a small flurry of activity in the remortgage world.

Of course we will all be grateful for this extra business, but it may not translate into the massive increase in actual business that many believe. Firstly, some lenders are worried. They are concerned that the demand they will face from clients to move onto a fixed rate will cause them supply issues as they simply have not got as much money to lend as before. If they are deluged with remortgage business suddenly, something has to give.

So we could see higher than expected rate rises from lenders, which may put off many looking to fix in any case, or a further tightening of criteria to control business levels. Even now it is the supply of mortgages that is constraining the sector as many of us working on the front line know, not quite the demand issue that the CML often alludes to.

The biggest issues a rate rise brings will be faced by the “mortgage prisoners”. Those on high LTV’s or whose job situation has changed and are unable to remortgage onto a fixed rate, (hello!). These are most at risk and a 1% change over the next few months could see repossessions rise, a situation surely not good for anyone. The rates that are on offer for these customers are so high that the phrase “payment shock” becomes “payment panic”.

For me, rather simplistic as I am, lenders can do more to help this situation by offering their existing clients in such a position a more realistic fixed rate to help stave off this threat, something starting with a 4 rather than a 6 or even 7. I am sure there must be some room to manoeuvre here rather than letting customers get further into trouble as rates rise.

The point here, and it is not about being negative, is that if you are sitting there thinking a rate rise will be the answer to all your issues, then you are missing the point. There are many other things you could be doing than waiting for things that cannot be controlled.

As a wise industry sage recently told me, too many people sit there and say, “once this happens or that is out of the way things will get better”. But there is always another something that needs to happen before things improve, until you realise, as Alfred D Souza says “these obstacles were my life.”

Making the best of things now is what really matters, and there are still many opportunities as we will no doubt see in the coming months.

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