Mortgage advice if base rate hits 0 per cent

The recent change to the Bank of England base rate has already prompted many existing and potential borrowers to seek/re-seek advice. 

An even lower base rate at 0 per cent could be used as a further prompt for advisers and clients to reconnect and possibly make further savings.

Jeremy Duncombe, director of the Legal & General Mortgage Club, says his brokers have seen a sharp increase in remortgage enquiries since the Bank of England’s decision to cut the base rate to 0.25 per cent.  

Mr Duncombe says it is likely that this trend will continue, but it is important to note that this increase in queries is not solely down to the interest rate cut. 

He says: “The last couple of months have seen a period of uncertainty in the mortgage market, and this ambiguity creates a need for educated advice.  

“Now is a great time for borrowers to review their finances through a broker in order to ensure they are receiving the best deal and saving money.”

Mr Duncombe says advisers need to be looking after their back book and getting in touch with clients directly. In doing so, Mr Duncombe says advisers can help their customers save thousands of pounds by remortgaging. 

He says: “Regular communication here will be essential: if brokers are not in regular contact with their clients, someone else will be.”

Lee Travis, head of professional development at the Society of Mortgage Professionals, agrees the base rate cut is the ideal opportunity for mortgage advisers to reconnect with their clients.

Now is a great time for interest-only customers to think about moving some of their mortgage to repayment terms whilst rates are low  Peter Rogerson

He says advisers should offer a full review to their clients to ensure their needs are continuing to be met and best client outcomes are being achieved.

“Additionally, it is as important as ever for advisers to carry out relevant and suitable CPD. 

“Advisers should keep abreast with all of the market changes to ensure that they are knowledgeable and confident in talking to their clients about all of the recent market developments. 

“Advisers should also be aware of different lenders’ product and criteria changes, so that they know where clients’ applications can be best placed. Many lenders (existing and new) have come to the market with unique ways of helping clients with more intricate needs.” 

For example, Mr Travis points out the specialist lending market has been booming of late. 

Equity release, limited company buy-to-lets, bridging and development finance are just some of many alternative ways of meeting borrowers’ needs these days.

Mr Travis says: “Knowledge of the market will give advisers the ability to ensure their clients receive well-rounded, comprehensive advice. 

“Even if advice cannot be provided in a specific area, advisers should be able to identify needs and refer clients on to specialists if relevant.”

In terms of the types of products that could prove increasingly popular in a low interest rate environment, David Copland, director at TMA Mortgage Club, says he expects to see more offset mortgages and current account mortgages being recommended.

He says these deals are able to offset a higher borrowing rate than can be achieved in the retail savings market.

Example:

An offset mortgage links your client’s current and savings account balances to their mortgage in order to reduce the mortgage balance they are charged interest on. 

So, if your client’s mortgage balance is £125,000 and they have £25,000 in their linked current and savings accounts, the lender would calculate their monthly mortgage interest on £100,000 instead of the full mortgage balance of £125,000.

While rates are low, Peter Rogerson, commercial director for mortgages at Virgin Money, says customers may also want to lock into longer term products rather than the typical two-year deal, for example.  

He says: “We may also see some SVR customers move to new fixed rate deals, and now is a great time for interest-only customers to think about moving some of their mortgage to repayment terms while rates are low and payments more affordable than ever.”