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Interest Rates: Pressure Grows for Early Cut

12.08.19

Summer Sizzler

Here we are in the midst of another long, hot summer? Well, we were for a few days anyway before normal service resumed.

The sound of leather upon willow at Lords, Strawberries & Cream at Wimbledon, the start of another arduous Football season, punting on the Cam and all those quintessentially English pastimes. Like talking about the weather and discussing the housing market.

In fact, it seems that the only thing sizzling this summer are the latest mortgage rate offerings from lenders keen to gain ground in a Mortgage Price War that shows no signs of abating any time soon. The question is, will interest rates get even better or could we be misguided to wait further?

Interest Rate Decision

It has been interesting to read that there seems to be a lot of pressure mounting on the Bank of England to look at potentially cutting interest rates before we get too close to the October 31st Brexit deadline.

The date to watch on this is September 19th and much will depend on how the economy seems to be faring at that time. The recent report from the Office for National Statistics, (ONS) showing that the UK economy shrank by 0.2% in the second quarter of 2019 was the first such occurrence since 2012. Manufacturing and construction both fell back, with new construction work decreasing by 1.3% in the three months of April to June.

With cuts across the globe to interest rates in the US, New Zealand, India and Thailand, the UK will not want to be accused of lagging behind and doing too little too late on one hand, but also have to balance the fact that cutting early will leave them with less firepower at the time.

It’s an interesting conundrum, but one which those in these positions are paid handsomely to make.

What does this mean for Mortgage Rates?

The result of all this speculation? SWAP rates stay low and therefore mortgage lenders feel that they can reduce rates even further. In fact, for those who are looking at buying or remortgaging, there have not been many better times to do so!

We have just seen another major lender react to the current environment by reducing a number of products which includes a 5-year fixed rate down at just 1.70%, (3.29% APRC). It wasn’t long ago that many thought we had seen the last of 5-year fixes below 2%, but it seems they will be here for a while yet.

Borrowers can also obtain 2-year fixes at 1.28%, (3.80% APRC), whilst variable tracker rates are around from 1.24%, (3.80% APRC).

Those with only a 5% deposit are not forgotten about and this remains an important part of the market for many lenders. At this level, a 2-year fixed is available from 2.59%, (5.14% APRC) or 5-year fixed rate at 2.90%, (4.84% APRC).

Meanwhile, the battle for the lesser-spotted Buy to Let Landlord continues apace as BM Solutions, one of the leaders in this market, increase their exposure limits and will now accept 5 properties up to a value of £3m.

The Housing Market

We have also recently seen the latest ONS Families & Households Report 2018 which showed that 24% more young adults were living with their parents in 2018 compared to 2008. This is not just statistically significant; it is a damning indictment of the property market today.

Rents have soared, especially in major cities, while the first rung of the property ladder seems out of reach given the sizeable deposits now required. Those fortunate enough to have help from the Bank of Mum and Dad are the one most able to take advantage of the low rates on offer at the moment.

The solution, we all know, is to build more affordable homes but we’re simply not doing so at the required rate. In the meantime, Brexit has cast a long shadow over the housebuilding sector.

For 3.4m young adults to be living with their parents is proof positive that the property market, despite the policies and initiatives of numerous governments, shows that more work needs to be done.

Lenders are trying, with more coming into the Help to Buy market and more availability for those with smaller deposits, but we need to do more to encourage innovation and look beyond Government assistance which can drive prices up further as much as it helps others onto the ladder.

Stamp Duty

Whilst many will be waiting with bated breath to see if there are any policy changes that could improve their position under Boris Johnson, especially in relation to stamp duty, waiting for Boris could be a false economy.

There is no guarantee there will be Stamp Duty changes, which he has talked about cutting as well as potentially passing on to the vendor rather than the buyer. Also, if a Brexit deal is reached or no-deal turns out to be a damp squib, the bounce-back, once the uncertainty is removed, may well see property prices and interest rates increase faster and further than expected.

It’s the uncertainty that is stifling the market and any return to certainty, whichever way, could lead to a stampede for those who have put their plans on hold for a while.

Remortgages

With all this in mind, we expect to see a pick-up in remortgage activity in August and September given that the likelihood of a no-deal exit from the EU has now ramped up significantly.

People are bracing themselves for a period of potentially strong turbulence and locking into the lowest mortgage rates possible provides vital protection for those of a nervous disposition or who just want some much-needed security.

To have a chat with one of our professional advisers click here.

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