17 March 2017

WHAT IS THE OUTLOOK FOR MORTGAGE RATES?

DESPITE THE US FEDERAL RESERVE RAISING INTEREST RATES BY A QUARTER POINT THIS WEEK, THE BANK OF ENGLAND HELD FIRM AT ITS MARCH MEETING, KEEPING ITS BENCHMARK RATE AT A RECORD LOW OF 0.25 PER CENT. WHILE ONE MEMBER – KRISTIN FORBES – VOTED IN FAVOUR OF A RISE, IT IS HARD TO SEE ANY CHANGE IN RATES ANYTIME SOON.

Swap rates – the rate lenders pay to borrow money – have been edging up over the past few days on the news that the US benchmark rate nudged upwards, and jumped again once the split in the Monetary Policy Committee (MPC) was known. Homeowners and potential first-time buyers may be worried as to how this will affect mortgage pricing but it is worth remembering that there is more to setting mortgage rates, as far as lenders are concerned, than Swap rate movements. There is also much competition among lenders to lend so some will be prepared to absorb higher borrowing costs, rather than pass them onto customers.

As long as there is uncertainty about the Brexit process, we don’t expect to see a rate rise until we are out the other side, which will take a couple of years at least. It looks as though we will be in an extremely low interest rate environment for the foreseeable future as the economic recovery is still tentative. While the MPC will have to keep a close eye on inflation, it seems unlikely that there will be any compelling evidence to persuade the majority of members to vote for a rate rise anytime soon.

As far as mortgages are concerned, the cheapest two-year fixes had slipped below 1 per cent before lenders recently increased those rates but one lender has this week launched a two-year fix pegged at 0.99 per cent, indicating that we haven’t seen the back of the lowest fixed rates. Five-year fixes start at less than 2 per cent, which represents excellent value for peace of mind over the medium term.

Those borrowers who don’t need the certainty of a fixed rate will be pleased to hear that there is also good value to be had in base-rate trackers. Those trackers with no early repayment charges give maximum flexibility as borrowers can overpay by as much as they like while they can also lock into a fix without paying a penalty when rates start to rise.

The remortgage market is particularly strong, with homeowners taking advantage of low rates and trying to obtain some security to deal with the uncertain times that we are living in. Currently, the bulk of our business is remortgaging, with some clients taking the opportunity to pull out a chunk of money at the same time as locking into a cheap rate. This money is being used to improve the home, rather than move somewhere slightly bigger and being hit with a hefty stamp duty bill.

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