It is widely expected that mortgage interest rates are about to undergo a major shake-up in the next two or three weeks. So what are the reasons for this and what might it mean for you?
These changes will impact anyone with a current mortgage or anyone looking to take out a new mortgage soon. So review your mortgage requirements as soon as you can.
If you would like to know which products may be available to you, call us today on 020 7519 4985 or email us at firstname.lastname@example.org.
This month will not only see the Term Funding scheme come to an end, but we have already seen hints from the Bank of England that the base rate may rise sooner, rather than later. Ahead of this, we have seen swap rates hike and lenders who have not already reacted are expected to start making changes to their product offering soon, as a result.
These factors all point to a rise in mortgage interest rates in the near future. So, taking action to review your mortgage now, might leave you in a better financial position in future than if you don’t.
The Term Funding Scheme coming to an end
Let’s break it down. The days after the Brexit vote saw a raft of measures introduced by the Bank of England to mitigate against any potential negative economic shocks. The Term Funding Scheme (TFS) was designed to ensure that the base rate cut to 0.25%, in August 2016, fed through the financial system for the benefit of borrowers.
It gave mortgage lenders access to up to £100 billion from central reserves, at lending levels near the base rate. The aim was to encourage banks to pass on the interest rate cut to households and businesses.1 It is fair to say that it doubtlessly contributed to the historically low mortgage interest rates that we saw in 2017, especially on lending above a million.2
However, with the TFS ending on the 28th February, the supply of cheap funding for lenders will soon be over.
Hints at base rate rise
In addition to the TFS ending, although the Monetary Policy Committee at the Bank of England voted last week to keep the base rate at 0.50%, they hinted that it might increase again, sooner than previously anticipated 3. With the inflation rate remaining obstinately above target for the last 12 months, Gertjan Vlieghe, a member of the monetary policy committee commented that the economy was ‘ready for somewhat higher interest rates’.4
Whilst this is positive news for savers, those who have mortgages or those looking to arrange a new mortgage will need to act fast to get their mortgage applications accepted before a speculated base rate rise, which may be as early as May 5.
Swap rate hike
Swap rates, the wholesale interest rates which partly dictate how much banks can lend, and at what rates, have increased considerably recently. The effects of this hike are expected to start impacting mortgage borrowers soon.6 With some lenders already quietly withdrawing their most competitive rates, it could be argued that we are beginning to see some of the impacts already.7
So, whether you are looking to remortgage or take out a new mortgage, it may be advisable to act sooner rather than later. Although some lenders have already started to adjust their product offering ahead of the expected market changes, there are still lenders with attractive mortgage products to offer.
Some borrowers are choosing 5 year fixed rate products, which allows them to benefit from the security of being locked in at current rates. Seeking professional advice may help you to access the most attractive rates, suited to your needs and circumstances.
Our Mortgage Managers have unlimited access to the market which means they can source mortgage products that you may be unable to find elsewhere. They have extensive experience in arranging both large loans and complex mortgages and strong relationships with a range of lenders. Call us today on 020 7519 4985 or email us at email@example.com to find out how we may be able to help you.
Your home or property may be repossessed if you do not keep up repayments on your mortgage
You may have to pay an early repayment charge to your existing lender if you remortgage