Is a perfect storm on the horizon for second charge mortgages? Matt Cottle, CEO Specialist Mortgage Group, takes a look at the evidence.

There were a lot of stories in the news last week that indicate a rise in interest rates is coming sooner rather than later. One of the biggest was that the Office of National Statistics had got their stats wrong (you had one job 😜). They originally stated that unit labour cost had increased by 1.6% year-on-year in the three months to June, but in fact, it had risen by 2.4%. Mark Carney has already said rising labour costs could lead to a rate hike and that was based on the old, lower figures. So, it seems the evidence is stacking up, pointing to an interest rate rise come 4th November’s MPC meeting.

And as I said in an article I wrote last week, the very minute interest rates do go back up, everyone who has a variable or tracker mortgage will be suddenly thinking: “I need to revisit my monthly costs and work out how to reduce my outgoings.” How will they do this? Through debt consolidation, that’s how (and when was the last time a mainstream mortgage lender happily lent for that reason?) and with banks already increasing their fixed mortgage rates, remortgaging is already becoming more expensive. In some cases, fixed-rates have gone up by 0.9% percentage while seconds have remained the same.

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If the above wasn’t enough news for you, then how about the BoE releasing a report predicting the biggest consumer credit squeeze since 2008? Yep, after almost a decade of relaxed unsecured lending, the big banks are beginning to think maybe it’s time to scale things back a bit. That doesn’t mean a total stop in unsecured lending just that they no longer see it as an area for growth.

So, let’s quickly summarise what’s happened in the past week:

• More evidence that interest rates will rise at some point, in the near future, forcing your clients to reconsider their monthly expenditure leading to consolidation requests
• Fixed-rate mortgage rates are on the increase rendering remortgages more expensive
• Banks are winding in the rope a little on unsecured loans and credit cards

You put all three together and you’ve got the perfect storm for a further increase in requests for second charge loans.

A rate rise will come, so it would very sensible to get in touch with clients who are most likely to be affected. Whether you deal with Chaseblue Loans, Y3S Loans or Pink Pig Loans, your Broker Manager will be able to get you genned up before the storm.

Sources:

https://www.theguardian.com/business/2017/oct/12/uk-banks-consumer-credit-credit-card-car-finance-loans-bank-of-england
https://www.professionaladviser.com/professional-adviser/news/3018852/boe-faces-further-pressure-to-hike-rates-after-ons-error
http://www.financialreporter.co.uk/mortgages/fixed-rates-begin-to-rise-amid-bank-rate-speculation.html