Rumours had persisted that the Bank of England were going to increase the base rate at the start of next year, and this seemed to fit with much of the economic data coming out of the UK PLC; therefore you would think that mortgage rates going up would be the obvious outcome.
However we have not factored in the important commercial factor, the fact that the majority of lenders have not hit their lending targets for this year, especially the bigger High Street banks. And the primary reason for this is the Mortgage Market Review (MMR). You may remember me talking about this in the Spring, and wondering what the impact would be. Lending is certainly tighter than it was, with lenders asking more questions and reducing the level of borrowing to clients. Happily most banks and building societies seem to have grasped how MMR needs to be applied and although borrowing has dropped the market is still reasonably buoyant. Whether this carries on next year I am not so sure – there are a lot of uncertainties around 2015, the biggest of which is the election.
When MMR came into play, at the end of April most lenders would prefer not to take on business that was on the edge of their criteria and affordability, and cases that they would have allowed pre-MMR were now being declined. This carried on for about three months, meaning that for many banks they now have a whole chunk of their lenidng target missing . Added to this is the fact that there is still a lot of cheap cash floating around in the system, generated either by low savings rates or left over from Funding for Lending (FFL). FFL was a Government scheme that ran in 2013 and was effectively a state subsidy, pumping money into the mortgage industry at low rates.
“Therefore we have a combination of missed lenidng targets and cheap money burning a hole in lenders’ balance sheets, which equals a range of excellent low rates.”
At the moment you can get a five year fixed below 3%, if your loan to value is below 75% which is remarkable, and they will remain low until either the money runs out or the targets are achieved. As you can imagine the resurgence of sub 3% five year fixed deals has caused quite a stir with clients clamouring to get on board. So if you missed the boat last time, and you plan on staying in your home for the medium to long term you need to act now, as when these deals go we are very unlikely to see anymore deals as good as these for a long time... if ever. And if you require shorter term products there are even mortgages out there for under 1.5% on a two year basis – again, remarkable rates. →
The Lemonade stall: An immediate history of lending. Let’s compare mortgages with lemonade. With a high supply of available lending supported by the government FFL scheme the mortgage market was on full throttle. This was expected to end as the lending ran out and rates increased. However the MMR has meant that banks still have plenty to lend and rates haven’t increased as expected.
Personally I think that these rates will be here until the end November, as lenders are pricing in this way to attract remortgage business that will complete by the end of the year and to build up their pipeline for 2015, therefore I reckon that we have another two to three weeks to go before they are withdrawn. So if you are on a variable rate of 2% or more, maybe even 1.5%, then you should seriously consider moving your mortgage. Who knows what state the economy will be in five years from now – but if you have managed to protect your mortgage costs as everything else increases (apart from salaries) it will be so much easier to plan your monthly budget.
If you wish to discuss your situation or you need help understanding your budget for the new available borrowing drop me a line on 020 7933 9651 or talk to Brik who will put you in touch.
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