Posted on 13 October 2014
Firstly, we find ourselves in the middle of a little rate skirmish between lenders who seem anxious to pick up some quick business between now and the end of the year, particularly in the longer term fixed rate arena. At the beginning of August the best 5 year deals were around 3.10%, but in just a few short weeks, we’ve seen lenders come down as low as 2.79% and have even seen a 6 year fixed launched at 2.99% and then withdrawn four days later due to excessive demand.
Secondly, we have had the uncertainty that the Scottish referendum created, which resulted in a number of unintended side effects. Although the soaring market of London and the South East was already showing signs of cooling, it’s no coincidence that the referendum and many of the more lurid stories gracing the front pages of the papers have also contributed to this cooling of market fervour.
However, although we now have a clear ‘no’ vote, it’s probable that a level of uncertainty will still prevail. This is due to the further powers that the three party leaders promised to Scotland, and the rather tight timescale they have in which to deliver them. The Prime Minister has also promised that as well as the Scots enjoying greater devolved powers, the English, Irish and Welsh must also have their say. This means that we are likely to see a great deal of political wrangling over the coming months, which may not be conducive to a confident housing market, and the wider economy.
Then we have Europe to consider. At a time when we are debating when interest rates are likely to begin increasing, the Eurozone (still our largest trading partner) is grappling with possible deflation, and engaging in some quantitative easing.
Inflation in the UK also edged down again in August to stand at 1.5%, which will further ease pressure on the MPC to raise the bank rate, despite two committee members voting for a 0.25% hike again in September’s meeting. The current inflation level makes it unlikely that we will see a bank rate rise this year, and with all the legislation for greater Scottish powers being drawn up, and the run up to the next election in May 2015, it makes all the more possible that the first rise will be in the second half of next year.
All in all, the current climate, both economically and politically is likely to keep the demand for fixed rates of 5 years or more extremely high in the coming months. The big question is, “how low will lenders go?” The answer, is probably “not much more”, so make sure you speak with your consultant to find out if there’s a better deal out there for you.
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