Experts predict a ‘bottoming’ in the mortgage market after interest rates hit a low this week.
According to analysis of new figures from the Bank of England by Knight Frank Finance, the average mortgage rate for borrowers with deposits fell from at least 40 percent in May to its all-time low.
The average two-year fixed rate of 60 percent loan-to-value fell to 1.20 percent, from 1.32 percent a year earlier.
Bottom out? Mortgage rates hit record low, but could rise
When the Bank of England started tracking this data in 2012, it was 2.76 percent.
The extremely low cost of mortgages has contributed to the ongoing housing boom in the UK since the housing market reopened after the pandemic.
The insatiable appetite of buyers to move home has led to new mortgage values starting the year at levels not seen since the 2008/09 financial crash,” said Paul Stockwell, Chief Commercial Officer at Gatehouse Bank.
“There has been a frenzy in the market, with movers looking for bigger homes and more outdoor space, while the extension of the stamp duty rebate until the end of June in the first quarter of this year has added more fuel to the fire.”
This was reflected in Bank of England data, which showed that mortgage pledges in the first three months of 2021 were 15 percent higher than in the same period last year.
However, some mortgage market experts argue that interest rates are unlikely to fall any further and that borrowers will soon see the tide turn in the form of rate hikes.
‘Borrowers have never had it so good’
“Mortgage rates of 1.2 percent almost certainly represent what will be the cheapest point of this cycle,” said Simon Gammon, managing partner at Knight Frank Finance.
Borrowers have never had it so good, and ultra-low mortgage rates are a major reason why home prices have been rising at their fastest pace since 2014.
“But as the economy comes back to life and inflation picks up, we are already seeing some major lenders raising the price of their products in anticipation of interest rates rising.
“This will be a gradual process, but the path of the cost of the mortgages will go up from this point.”
Also this week, data published by financial information firm Defaqto showed that lenders were offering historically low rates on 5-year fixed products for those with 40 percent deposits.
It said the current best buy was the Barclays 5 years, locked at 1.19 percent, which was the lowest rate on the market in at least 12 years.
Until a few months ago, the closest comparable rate offered was 1.28 percent, Defaqto said.
Katie Brain, consumer expert at Defaqto, said the low rates showed that lenders were finally passing on the benefits of the extremely low base rate of 0.1 percent to customers.
“We haven’t seen interest rates this low in a long time and it’s great news for anyone looking to take out a new mortgage,” she said.
“While the Bank of England kept interest rates low during the pandemic, we have not seen it pass it on to borrowers in this way until now.”
“These rates are very attractive if you know you’ll be staying in your home for the next five years and you can cling to a flat rate,” she said.
However, Brain said there could be further rate cuts for lower loan-to-value products, suggesting the market may not have bottomed out yet.
“While these products are primarily designed for people looking to get a new mortgage, hopefully it’s an indication of where the mortgage loans are going and we can see rates lower across the board,” she added.
While the higher-deposit market, driven by remortgages, remains highly affordable, rates at the other end of the scale are not reaching the same record lows.
For example, rates for 5 percent mortgages are more than 4 percent in some cases.
House prices have risen 10.9 percent in the past year, according to the Nationwide Indexindex
Rates still historically very low
Whether rates will rise in general will depend in large part on inflation, so it’s hard to predict when this will happen.
“Mortgage rates are historically low and there is a general consensus that rates will rise if inflation returns,” said Marc Goldberg, head of sales at brokerage Marsh & Parsons.
“While I suspect the rates have bottomed out, there are so many variables and you can’t say for sure at this point.”
If mortgage lending becomes more expensive, this could help slow down the runaway house price increases of the past year.
The latest estimates show an increase of around £30,000 on average.
“It is inevitable that significant increases in mortgage rates will slow home price inflation,” Goldberg added. “Although we don’t expect any dramatic changes this year with so much uncertainty in the background.”
If there are rate increases, they will likely be small and gradual.
“We believe rates will remain steadfastly low, with very small increases in the coming years, so the long-term changes brought on by the pandemic will continue to fuel market demand for some time to come,” said Stuart Law, CEO of real estate company de Assetz Group. .
With so much uncertainty in the market, the movement in mortgage rates is difficult to describe. So what’s the advice for borrowers?
Sam Le Pard, co-founder of LEXI Finance, a home developer consultancy, reminds those looking to buy or re-mortgage their home that even if interest rates rise, in a historical context, they will likely still be very low.
“We’ve seen market commentators try to call it ‘bottom’ before, only to push it further down, so it’s hard to say definitively,” he says.
“With the money that has been pumped into the system since the outbreak of Covid-19 and the apparent push from lenders to get cash into the market, I wouldn’t be surprised if there are small further cuts in lenders’ prices. Nor would I be surprised if we saw any gains, especially if the BoE becomes more concerned about inflation.
“But if you compare current mortgage prices to long-term trends, these are incredibly low prices, it’s a good time to borrow.”