Story for The Times: Rise of the base rate gamblers

As someone buying several properties and remortgaging many more, my strong word of caution for anyone looking to fix their mortgage for "peace of mind" is to avoid it at the moment if you can.

That peace of mind could turn into pieces of mind by end of this year or early next when one realises that the base rate has inched closer to 3% and more mortgage deals start becoming available at sub-4% levels.

There are strong indications of inflation and interest rates cooling off over the next 6 months, so hold your horses if you can. Ride them if you can't.

By that I mean, if you have a BTL property that is making a decent return even at a 6% borrowing rate and you are a busy individual with other things demanding your attention, it may not be such a bad idea to swallow a 2Y-fix pill so that you can forget about that old property of yours and focus on what matters next.

Since the increase of almost all lenders SVR's to 7%+ we have not seen anybody who is content on staying on their SVR. With many more suitable alternative options, why would you? Trackers with and without a fee and even tracker mortgages with early repayment fees seem like better options. The only exception which we have seen are clients who are just going through the process of moving home, in which it makes sense for them to stay on the SVR for a small period of time.

There are very few circumstances where i would ever recommend a borrower stay on SVR, mostly only if they are completing a sale in the next few months/paying the mortgage off would it make any sense. A tracker or discount variable rate can still be great advice and there are some fantastic products in these areas around, but SVRs are usually extremely high interest so more often than not a poor decision to be stuck on for any extended period of time.

Funnily enough, I have 2 base rate gambler cases on my desk today - both we have been emailing since May 2022, and both have totally ignored our rate offerings and now decide to act and take what is, in our opinion, poor value arrangements as they have missed the boat somewhat. I don't think in general UK mortgage account holders are gambling on the rates I just think that in today's life, people have so many distractions they just don't get enough time to deal with the complicated things in life sadly.

It’s interesting to see that some clients might be hoping to gamble on base rate falls. Staying on an SVR or taking out an SVR loan has more than a whiff of the high-risk corral to it.

We’re very aware that our job, as advisors, is to listen to our clients. Many people have opinions on this issue right now. All we can do is to challenge and encourage our clients to weigh up all the pros and cons of every decision they want to make.

Each case is unique and needs individual attention. So, it’s impossible to make a sweeping statement about whether it’s risky or not. As always the most important thing is that anyone thinking along these lines seeks advice so that they fully understand their actions.

There aren’t many cases where sitting on a standard variable rate makes sense. If you think the Base Rate will soon decrease and flexibility is the priority, there may be options to remortgage onto a tracker rate with no arrangement fees, potentially with legal fees covered by the lender. These rates are more likely to be in the 4% range rather than 7% range, which can make a big difference.

Tracker rates have become more popular, particularly those with no exit fees. Clients then have the flexibility to switch over to a fixed rate if they become uncomfortable being on a tracker rate, or can benefit if the Base Rate decreases over the next couple of years, then potentially move onto a fixed rate when rates, in general, are lower.

Personally, if I was taking out a mortgage now, I’d be opting for a tracker rate, but everyone has different attitudes to risk. There’s no right or wrong, but those sitting on the lender’s standard variable rate should review their options.

We understand why some borrowers may be willing to take a risk on the base rate falling. The decision to take a tracker, discounted SVR or straight-up SVR loan can be risky as there's no guarantee the base rate will decrease. Nevertheless, some borrowers may feel that the potential savings outweigh the risks, particularly if they have a small mortgage. Borrowers with a high-risk tolerance or those optimistic about the economy may also be willing to take a chance. However, it's essential to weigh the potential risks against benefits and consult with a mortgage adviser before making any decisions.

Ultimately it will come down to a customer's attitude to risk as no two clients will be the same. As brokers, we are spending a lot of time educating clients on the pros and cons of trackers and other variable-based products vs a fixed rare. For a whole generation, many have not even considered these before during a period of ultra-low interest rates.

No one has a crystal ball on how the rest of 2023 will pan out with interest rates but we look to advice clients accordingly with information that is available at that time.

We have seen an increase in clients accepting non-fixed rate solutions from the mini-budget right through to now. Discount trackers, variable rates and standard trackers are all becoming contenders when looking at purchase and remortgage. In the main these clients are holding out until the perception of the market is stable enabling them to switch to a competitive fixed product.

The issue with this approach is when this perceived better rate will be available. picking up inflated product fees and in some cases ERCs to save as little as 1.5% in the current open market rates.

At Castle View Finance ltd we are biased toward investment interest-only investor clients, which has seen a greater effect on ICR (Income coverage), so SVR and PT have often been the best short-term solution. With inflation slowing and lending becoming more competitive, it appears this short-term approach may be 'well played' where fixed-term mortgages have been unachievable.

Taking a punt on the base rate falling later this year is not for the feint hearted if you're paying the lender's SVR. Inflation could fall sharply, but that doesn't necessarily mean the base rate will. Four per cent mortgages are probably the new normal.

Legendary stargazer, Mystic Meg may have passed away recently, but in some people in respect of their mortgage, at least her legacy does live on. Since the infamous mini-budget of 2022 and the subsequent sharp rise in rates that followed, the conversation with clients around whether to opt to fix, track or gamble has become an even more nuanced one.

In simpler times, it was undeniably rare for clients to look at anything other than securing the stability of historically low rates for the next 2-5 years but with rapid fluctuation and indications of a possible downward trend, in recent weeks, several clients have been willing to lapse on to their lenders higher standard variable rate for at least another month or two to see how the cards fall. In the main, these particular dice are only being rolled by those fortunate enough to have mortgages at a relatively low level (sub £100k) where affordability and monthly payments may be less pressured.