Divided Opinions Amongst Mortgage Advisers

Mortgage advisers are divided in their opinions as to who are the important winners and losers out of the most recent interest rate rises. Not anyone could argue that borrowers who have variable rate mortgages have lost out because their monthly repayments have increased a result of extra interest due. However there is debate over whether borrowers of fixed rate mortgage products are better or worse of than before the brand new base rate rises.

The interest rates set on fixed rate mortgage products should not necessarily tied to the Bank of England Base Rate. Rather, they’re derived from the associated fee of borrowing to the lender, generally known as the swap rate. While the base rate has risen during the last year, so have swap rates. This should lead to an increase within the interest rates offered by lenders on fixed rate mortgages. In other words, lenders would pass on the increasing borrowing costs they may be forced to endure to their borrowers.

However, this has not strictly been the case. Many lenders have not passed the increased swap rates on to their borrowers and have instead reduced their margins. Some mortgage advisers are claiming that by not passing on the total amount of the increase in swap rates, the borrowers are gaining a giant benefit. Other mortgage advisers, however, are quick to indicate that although the interest rates offered on fixed mortgages haven’t risen according to the increase in swap rates, they have got risen, and borrowers are worse off as a result of.

Whatever their individual opinions, mortgage advisers had been busy helping their clients economize by remortgaging to more favourable products as interest rates increase. This flurry of activity has meant that mortgage advisers stands out as the real winners as they receive commissions and costs from mortgage lenders for each remortgage they complete for their clients.

Every time the Bank of England raises the base rate to curb inflation many lenders subsequently increase the interest rates they charge on their mortgage products. The reason is most mortgages have interest rates which are calculated as the Bank of England Base Rate (BoEBR) plus a undeniable percentage point – for instance BoEBR + 1%. A mortgage with an interest rate calculated in this fashion would have a rate of 6% if the BoEBR was sitting on 5%.

The base rate is generally increased or decreased by one quarter of a percentage point in modern times. When it’s miles increased several times in succession homeowners with mortgages begin to feel the pinch as their monthly repayments increase. This may result in a flurry of activity within the home loan market. Some borrowers will look to remortgage to other home loan products with a view to source a cheaper variable rate deal while others will look to lock in their monthly repayments with a set rate product.

When this happens mortgage advisers become extremely busy as they hurry to prepare new home loan products for their customers. Advisers normally charge a fee for sourcing and arranging mortgage deals for their clients which means they are going to benefit financially from periods of high activity inside the BoEBR.