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New Era of 1% Interest Rate Mortgages Could Be On The Way

A lowering of the Bank of England’s base interest rate could stoke competition amongst mortgage providers, leading to interest rates of 1% or even lower.

Customers may soon be able to take advantage of even lower interest rates on fixed-rate mortgages as competition, encouraged by the Bank of England leads them into record territory.

In an attempt to boost the housing market following the vote for the U.K. to leave the E.U., the Bank of England’s base interest rate was cut to just 0.25% in August. Economists predict a further cut, perhaps to as low as 0.1% to come in November.

Competition Amongst Lenders

H.S.B.C. has positioned itself as a leading figure in the movement towards 1% mortgage interest rates. The bank is already offering a mortgage rate of 0.99% over a period of 2 years, however, to access this, customers must pay a deposit of at least 35%.

Analysts at Bernstein, a research company based in the City predict further rate cuts amongst the competitors in the mortgage market, arguing that for these companies, attracting new customers will be relatively cheap.

Standard, 2-year fixed-rate mortgages are forecast to go as low as 1.1% with the sub 1% interest rates available to customers with good credit ratings. Bernstein state that “if your credit rating is fine, you are probably going to get a cheaper mortgage from either a bank with excess deposits (H.S.B.C., Royal Bank of Scotland) or ones desperate to grow their book — that’s sub 100 basis points (1%).”

Boost To The Housing Market

David Hollingworth, from the mortgage brokers London and Country sees further cutting of the Bank of England’s base rate as something that can fuel greater market activity. According to the latest figures from the property website, Rightmove, house prices are currently up 4% on the last 12-months.

For Independent Mortgage advice please contact us at Hoskin Mortgages for more information.

Clare Allen.

Hoskin Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority number 613005. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

The Bank of England is likely to introduce stress tests for buy-to-let mortgages, which will restrict the amount landlords can borrow, brokers have warned.

It has been suggested that the Bank might look to use other tools other than interest rate rises to control the housing market without endangering growth in the rest of the economy. The Bank of England revealed they have an FPC, which works alongside the MPC. It has tools which can put limits on the amount of indebtedness that household can take on and so can reduce the banks’ ability to lend very risky loans.

The FPC is to receive powers to temper the buy-to-let market which could suggest tougher controls on lending to landlords. While the FPC is set to gain greater control over the sector, it is still down to the committee to decide whether to use the extra powers, which have yet to be decided.

When the Chancellor confirms the FPC’s powers over the buy-to-let market, they may try to introduce the same stress test as they require for residential mortgages, which is to test affordability against a 3 per cent interest rate rise. Because rental cover requirements for buy-to-let are normal 125 per cent at a 5 per cent interest rate, the stress test would have the effect of restricting LTVs. It is quite likely that the bank will do that at some stage next year.

The bank of England would like to curb the housing market and they might do something to limit buy-to-let LTVs. If they start stress testing for a 3 per cent increase in rates that would clearly cool the market and limit borrowing, but it depends on exactly how they calculate this.

Lenders are already starting to introduce stress tests though and buy-to-let growth has been slow and sustainable, with much of the increase in lending coming as a result of landlords re-mortgaging rather than new purchases.

For more help and advice on mortgages please contact us @HoskinMortgages.

Interest Rates to Fix or Not To Fix

The proportion of borrowers opting for fixed rate mortgages fell in September despite the market expecting base rate to increase within the next year. The proportion of purchase borrowers choosing to fix fell 2 per cent from September 2013’s average of 94 per cent.

Re-mortgage borrowers’ preference also swung towards variable rates in September, with 89 per cent choosing to fix compared with 92 per cent 12 months earlier.

The fall in tracker rate pricing, combined with the Bank of England stating any rise in interest rates will be gradual, have prompted borrowers to choose variable over fixed rates.

It appears that interest rates will remain at historic lows for the foreseeable future, as the economy continues to recover and will probably remain low for the medium term.

The question of interest rate rises is not an ‘if’ but a ‘when’. That being said, the Bank of England has made repeated assurances that interest rate rises will be gradual, and this seems to have filtered through to some customers, who are willing to opt for variable mortgages to take advantage of lower pricing.

Once interest rate rises become a reality, the swing back to longer-term fixed rates may occur.

Lenders will price in a change in base rate well in advance of any decision to increase and therefore current best buy rates are not going to be around for long.

Now is an ideal time for existing homeowners to check whether their current mortgage is still the best deal, acting fast before interest rates rise and could prove beneficial in the long-term.

Despite the Bank’s move to reassure borrowers that rate hikes are not imminent, brokers believe other factors mean borrowers still should be considering fixed rate mortgages.

The reality is a rate rise of just 0.5 percent could see the average mortgage bill increase by £750 per year. Five-year fixed rates have already begun to rise. The five-year swap rate, used to calculate the loans, hit 1.7 percent in January up from below 1 per cent last spring. This rise is a 65 percent jump in relative rates.

Borrowers do not need to panic about rates rising right now, however they should maybe plan for when they eventually do. A five-year fixed rate in the medium term represents good value.

Borrowers should therefore look at their options and talk to an Adviser to tie down a more favorable deal.

The Bank of England is trying to convince the market of that fact and using unemployment as a guideline clearly did not work as planned. So the switch to a broader range of criteria allows for greater flexibility when it comes to adjusting rates.

Borrowers should remain cautious about eventual high mortgage repayments.

For more help and advice please donot hesitate to contact Clare Allan @HoskinMortgages.

Bank of England Interest rate rise getting closer

Bank of England governor Mark Carney says an increase in the base interest rate is “getting closer” but will not return to pre-crisis levels.

UK economy is beginning to “normalise” and suggested interest rates could soon follow suit. With many of the conditions for the economy to normalise now met, the point at which interest rates also begin to normalise is getting closer.

Carney added that due to a variety of economic factors, including uncertainty in the Euro area and current levels of household debt, interest rates are unlikely to rise to levels seen before the credit crisis.

The latest forecasts show that, if interest rates were to follow the path expected by markets – that is, beginning to increase by the spring and thereafter rising very gradually – inflation would settle at around 2 per cent by the end of the forecast

The committee voted last week to keep the rate at its current historic low of 0.5 per cent for the 66th consecutive month.

With the imminent interest rate rise. How many current borrowers were in the market when base rates were above 5 per cent? Many of those who are on pre-2007 rates will be vulnerable to modest rises because they are on 2.5 per cent floating rates or lower. For interest-only borrowers in this situation a 1 per cent rate rise will represent a 40 per cent increase.

Help to Buy schemes have introduced many to home ownership, accelerating a process that might have seen them not entering the market until 2015/16. It is a similar story with home movers who have upgraded a year or two early with help from the schemes. This situation is not too dissimilar to former chancellor Nigel Lawson removing tax relief for unmarried couples and giving them five months’ notice, creating a rush and establishing a false market. To this, add the Mortgage Market Review, which is making it impossible for some borrowers to move sideways, let alone upgrade, because they find they are offered lower mortgage amounts than they currently have.

Many interest-only borrowers have become mortgage prisoners, with lenders ignoring or reinterpreting FCA rules. Many are forced to switch to repayment loans when negotiating a new rate or looking to re-mortgage or move. Those not on fixed rates will be the hardest pressed when rates rise.

For more help and information please do not hesitate me.

Clare Allen @ Hoskin Mortgages

 

 

 

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