Posted on 13 October 2014 by
We’ve all heard the gloomy prediction of imminent rate rises this year, with many homeowners preparing to tighten their belts as rates creep up and mortgage payments increase. But something rather interesting is happening… In the last few weeks, we’ve seen some lenders competing to offer the best rates on two to five year fixes, with several lenders offering rates below 3%. But how can this be? We’ve been told in the news for months now that the Bank of England base rate may be going up!
You see, mortgage rates are no longer linked to the Bank of England base rate as much. Because the base rate has been at 0.5% for some time, lenders no longer use it to calculate the rates for their mortgage offerings – instead, it is now based on the cost of the funds to that lender, added to this has been the uncertainty in the mortgage market caused by the Mortgage Market Review (MMR) and the Loan to Income Caps (LTI), making many lenders more conservative than they have been in the past.
When MMR went live in April this year, lenders were very careful to implement the new rules, and asked far more questions around individual client’s ability to afford the repayments, (now and in the future), and as such we saw lending slow down as banks and building societies would prefer to turn business away than take on a client that they felt may fall foul of the new MMR rules. Of course the upshot of this was that as less money was lent, some banks and building societies may have not quite reached their lending targets for 2014.
MMR has been with us for six months now, and lenders are starting to feel their way around and seem more confident on how to proceed – and if they haven’t met their targets, they may now want to increase their lending.
Added to this is the effect of the 2013 Funding for Lending policy (offering loans to banks at an attractive rate, on the condition it is lent out to customers). Any banks that benefited from this policy which have not lent out all the money under Funding for Lending, now need to make sure it is lent out.
The positive outcome is that we see a number of very competitive sub 3% five-year fixed deals in the marketplace. If you are on a low base rate tracker or standard variable rate, or coming to the end of your existing deal, you may want to grab these rates whilst you can. If you want to discuss this then please contact myself, or one of my expert colleagues, and we can put together a proposal for your new lending.
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