Bargain-basement mortgages are still to be found, thanks to record low rates, but how long will this remain the case? It’s been a rollercoaster ride for those looking to secure a home loan recently with this week’s stock market turbulence coming hot on the heels of rumours of looming rate rises and best-buy deals being pulled.
So what impact will the turmoil have, and how do you position yourself to get a mortgage now? Here’s what you need to know.
Are rates about to rise?
Those who joined the stampede for mortgages last month after Mark Carney, the governor of the Bank of England, hinted that the base rate could be increased may have been hasty, as the falls in the stock markets that briefly wiped $1 trillion from the value of companies across the globe have made an increase less likely. Markets have since rallied but the aftershocks of the “Great Fall of China” will have an impact on the mortgage market.
David Hollingworth, of the broker London and Country Mortgages, says: “The ac tivity in China raises the possibility that the timing of the first interest rate rise is once again pushed out further. Fixed rates had started to lift as the expectation of a rate rise in the new year heightened and funding costs rose. That flurry of rate increases has slowed.”
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Another factor that will help keep the costs of loans down is that swap rates — the wholesale rates that determine the cost of home loans — have eased back slightly in the past couple of weeks.
Lock in now
The financial crisis may have thrown doubt over when a base rate rise will happen but if you’re seeking finance you should still move quickly to secure low rates. Brian Murphy, the head of lending at the Mortgage Advice Bureau, says: “Several lenders increased their pricing in July, so if borrowers are in a position to make a long-term commitment, a fixed rate can protect against future rises,” he says. “It’s unlikely that today’s rates are going to be around for much longer.”
Although the threat of a rate rise has receded somewhat, some of the best deals are still being pulled, and yesterday Natwest raised its 2.23 per cent five-year fix to 2.34 per cent.
Mr Hollingworth says: “Although the pressure to increase interest rates looks to have eased it would be optimistic to hope for big cuts just yet. It does hopefully mean that the competitive tension between lenders will mean that sharp pricing will still be available, but there’s little argument to hold off if you want to fix.”
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When to apply
Lenders are thought to be struggling to meet their annual targets so it’s a good time to arrange a mortgage, according to industry insiders.
Ray Boulger, of John Charcol, the broker, says: “The only option for the major players to pump up volumes is to compete on rates. I expect lenders to beef up their product range in September. A fixed rate makes sense for most borrowers because they are only slightly dearer than tracker or discount rates and so the price for peace of mind is small. However, rates are unlikely to change much in the short term so there is no need to panic as a result of the Chinese problem.”
Limited supply
You may find it easier to get a loan than find a home. Nationwide says that surveyors reported the lowest ever number of properties on their books in July, and according to Haart, the number of houses for sale has fallen by 15 per cent annually and in London, by a fifth.
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Jeremy Duncombe, of Legal & General Mortgage Club, says that things are unlikely to improve until more houses are built. “House price inflation has bucked the August seasonal trend due to the current lack of supply, which has pushed up prices compared to the same period last year.”
Bigger deposits
It’s always been the case that the more you have in savings, the better the deal you will get, but the amount that you can squirrel away is becoming more important. Deposits are getting bigger and according to Your Move and Reeds Rains the average first-time buyer now puts down £27,975 — a year-on-year increase of 10 per cent. The average loan to value ratio fell to 82.7 per cent in July. Data released by e.surv, the chartered surveyor, paints a similar picture, with the number of small-deposit loans approved in July dropping 5.9 per cent in a month and 7.1 per cent year-on-year. For the best deals, you will need a 65 per cent LTV — a 35 per cent deposit.
Remortgaging
Homeowners are cashing in on rising values and figures from the property services group LMS reveal that the number of loans increased by almost 50 per cent in July to the highest level since 2008, with the average amount being borrowed exceeding £170,000.
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Richard Sexton, director of e.surv chartered surveyors, says: “Many homeowners now have a much stronger financial footing and are reassessing their finances and switching to better rates while they can. At the moment, a wide array of record low deals remain, despite some initial withdrawals.”
If you’re thinking about remortgaging, act now before the best deals disappear. Research by moneyfacts.co.uk shows that the cost of fixed-rate mortgages is creeping up, with the average two-year deal increasing from 2.76 per cent at the start of August to 2.82 per cent now.
Five-year fixed-rate deals have also risen, increasing from 3.24 per cent to 3.29 per cent over the same period. Charlotte Nelson of Moneyfacts says: “We do not necessarily need a base-rate rise to see rates move upwards. Borrowers need to act fast to secure the remaining record-low deals on the market — these offers will not last for ever.”