Mortgage Rates - The Brexit Effect
Trying to predict interest rate direction over any length of time has always been fraught with danger. However, the significance of the ‘leave’ vote and its potential impact on interest rates, some of which we are already seeing, presents an opportunity for mortgage borrowers that may not be seen again. Now is the time to act!
Will interest rates fall? Well the crystal ball is broken so we’ll have to give some consideration to what may or may not happen. A fall in the value of the pound against foreign currency would usually lead to an increase in interest rates, which in turn attracts foreign currency and in so doing strengthens the pound. A falling pound will increase the costs of imports and drives up inflation (increasing cost of your Japanese TV, German car and even your pint of continental lager or favourite wine) so it’s not impossible for a rate increase to occur.
However, the counter to this is that an increase in interest rates could add to any economic slowdown and this is perhaps a greater threat. The Governor of the Bank of England, Mark Carney, swiftly came out after the Brexit vote and stated that an interest rate cut would be considered if the need arose. But with the interest rate already at an all-time low (0.50%), there is not much room to manoeuvre. This option is only likely if things really do start to look poor from an economic perspective and that may not be the case for some time, if at all. So this balancing act may just result in not much happening to the base rate for a while yet.
What does this mean for mortgage rates? Variable rates and trackers will be influenced by the Bank of England base rate so there may not be much change here just yet. However, for those of you on a variable rate or coming to the end of a “deal” in the near future, now is the time to take a close look at fixed rates.
Fixed rate mortgages are based on money markets and the cost of fixed rates is influenced by sentiment. The Brexit vote has already started to have an impact on the fixed rate market. Many lenders have already lowered their fixed rate offerings and more will no doubt follow. The fixed rate market will also potentially see increased competition as lenders battle for market share and this too can drive rates down.
There are now 2 year fixed rates at c. 1.50%. But the rates that really stand out are the longer term rates for 5 and even 10 years with rates under 2.50%. That is significantly better than many of the standard variable and tracker rates people have been sat on for the last few years.
There is now little or no premium to be paid for the security of a long term fixed rate compared to the variable rates on offer. Let’s be blunt, fixed rate money is now very cheap indeed! Could it get cheaper? Maybe, but our view is that it’s probably a good time to bag what’s on offer.
A longer term fixed rate can provide great security during times of uncertainty. Of course, it may not be suitable for everyone and careful consideration of your circumstances and plans is crucial before making any changes.
To discuss further or to arrange a face to face meeting please contact us.