Borrowers have been enjoying record-breaking rates as low as 1% for the last few months, but these are now reaching an end. Homeowners or landlords that have been waiting for rates to hit rock-bottom before they commit to a fixed rate may now find their choices vanishing.
Mark Carney’s hint that the Monetary Policy Committee (MPC) for the Bank of England will raise Bank Rate at the start of next year has, unsurprisingly, been followed by several lenders, including Barclays, Yorkshire Building Society and Santander, pulling their fixed rates. Santander has increased many rates by 0.1%. The Barclays 10 year fixed rate at 2.99% was replaced at 3.25%.
Other lenders will have little choice but to follow suit – simply because the pricing of wholesale fixed money is significantly influenced by how Bank Rate is expected to behave over the forthcoming years.
Bank Rate has been 0.5% for six years but a turnaround is imminent as the economy shows clear signs of improvement: the British Bankers Association has reported a 14.4% increase in mortgage loans compared to the previous year. GDP inflation is now looking healthier at 0.7% and Greece is less unstable, all contributing to the expectation that the MPC will indeed begin to raise the Bank Rate after Christmas.
This means that borrowers on variable rates need to ensure they have the income to cover increasing payments, or secure a fixed rate promptly. A rate increase of 0.25% on a £250,000 mortgage puts up the monthly interest by over £52 a month. A full 1% increase puts up the interest by a significant £208 a month, costing £2,500 more in total over a year.
Buy to let investors particularly would see a significant change in their fortunes if their mortgage rates increase but they are unable to alter their current rental agreements, so any clients with portfolios of multiple properties should consider taking advantage of the current low rates to fix their outgoing costs for the next few years. For example, the Skipton Building Society has a 3 year Buy-to-Let fixed rate at 2.79% up to 60% Loan-to-value for a £1,995 fee, reverting to 5.19% (4.8% APR). For loans up to 75% of the property value, Metro Bank have a 5 year Buy-to-Let fix at 3.79% for a £1,999 fee, reverting to 4.5% (APR 4.5%).
Residential buyers may be using funds raised from other properties or using funds from their parents remortgaging so it’s important they too have access to good advice. If you would like to discuss this, or any unusual mortgage possibilities for your buyers or vendors, please call me on 0844 879 4522 or alternatively email me on firstname.lastname@example.org. Mortgage rates are expected to be withdrawn at any time but are right at the time of publication.
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