Is the race to see how low rates can go over?
Posted on 12 December 2016 by
Last week HSBC has announced that it is increasing the rates of all fixed rate products by between 0.1% to 0.5%. For fixed rate mortgages, especially the longer term ones, to borrow from the song, it looks like “the only way is up”. Now that might seem quite a bold statement but figures released by the Council of Mortgage Lenders (CML) just last month revealed that home loan affordability had reached an historic low for both those looking to get on and those already on the UK housing ladder.
The CML report stated that “the amount borrowers are paying as a percentage of their household income to service capital and interest rates reached a historic low this month for both first-time buyers and home movers, 17.8% and 17.7% respectively”.
Meanwhile at the same time the average five-year fixed rate deal fell below 3% for the first time on record against the average rate of 3.89% in November 2013 and 4.68% in November 2011.
“Immediately after the Brexit vote in June we saw swap rates plummet” Ray Boulger, of John Charcol commented. Swap rates are the money market rates paid by lenders which usually influence mortgage rates. This drop in swap rates allowed lenders to cut their fixed mortgage rates. But since late summer market rates have been steadily begun rising, reflecting the growing uncertainty both in the UK and around the world.” However, not all lenders buy from the money markets, and many fund their mortgage lending using the deposits from savers, and if they are having to pay more to attract the money, then this also puts upwards pressure on mortgage rates.
Indeed changes in the market following fears over a hard Brexit in October and then the Trump presidency in November have meant that rates across all long term fixed deals are likely to increase. How we can predict this is through looking at the rise in swap rates. These rates have risen sharply since August, with the cost of five-year money more than doubling from 0.43% in August to 0.9% at the start of November. After Trump's surprise win on 9 November 2016 swap rates spiked and rose on a daily basis with the rate currently sitting at 0.95%.
“Trump's victory added another massive uncertainty into the mix of political and economic unknowns. This could lead to longer-term fixed-rate deals being withdrawn or repriced upwards,” Ray Boulger commented, especially if their increasing popularity leads lenders to re-balance their books.
With mortgage rates look set to rise – what can you do?
After months of lenders reducing rates and following the looming uncertainty around the UK’s decision to exit the European Union our economy is about to go through the biggest change and challenge in a generation. With all the uncertainty you can’t control, it’s nice to know that there’s something that you can. Fixing your mortgage until at least the other side of Brexit or beyond, gives you at least one sure thing in this very uncertain world. “If you’re a borrower and you need to remortgage right now then waiting is pointless. With rates so low and with the market starting to shift you risk missing the boat by waiting any longer. It’s often the case that when one big lender pulls their best rates, many others follow suit almost immediately, so hesitation can be costly!” Ray concluded. Even if you’re still in the redemption penalty period of your current deal, it’s worth speaking to us now, to see what you’re options might be.
Concerned about your existing mortgage deal? Contact us now for a free assessment on 0344 346 3672 or enquire here
Categories: Long term fixed rates
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