Helping borrowers as higher rates loom
Posted on March 22nd 2010
After an historic period of low interest rates, base rates are predicted to start rising steadily in Q3-Q4 2010. Money markets are pricing in a 0.25% rise within a 6 month time frame with a second and possible third rise in a 12 month timeframe. Money markets often get the forecast wrong but this time the only way rates are likely to go is up, the big question is when.
Swap rates are pointing to a significant up step in interbank rates between the 1 and 2 year time lines to 2.5-3%. Predicted interest rates then return to a long term equilibrium of 4.5-5% over the 5-10 year time lines. Whilst this sounds a bit gloomy it is very likely that post the election interest rates will start to normalise and that could be good news for mortgage brokers and IFAs.
Borrowers have had it relatively easy in terms of the cost of mortgage payments and will no doubt seek advice when they are threatened with increased payments. I like the Stroud and Swindon cap and collar product that was recently launched and this is a product area that will become increasingly popular over the next six months.
This seems like a good time for brokers and IFAs to be speaking to their mortgage customers to ensure that they have a strategy in place for when the inevitable rate increases start to happen. Whilst none of us know for a fact what is going to happen it is possible to plan for a number of scenarios and help borrowers prepare for the future.
