The next few months are likely to be an interesting time for many borrowers, whether they have an existing mortgage or are in the market for their first one. This is because for the first time in many years we could soon be entering an increasing rate environment, something many new borrowers have never known.
In fact, given the last actual rate rise was July 2007, it is not just borrowers, but a new generation of brokers, agents, regulators and lending staff who have never experienced a rate rise!
Whilst the timing is tricky to ascertain, China is the latest global issue to look to have pushed the timing back further although Governor Carney would have us believe otherwise, what is more important is the subsequent speed of any further interest rate rises which is of course still unknown.
The main issue is that given the length of time we have all enjoyed low interest rates for, any small change will now have a larger than normal affect; in other words it will feel tougher, quicker.
As a result there will be a good many borrowers who would be better off looking at the security of a longer term fixed rate now to ensure that they do not have issues further down the line. A fixed rate will keep the mortgage payments stable over the initial, say 5 year period of the loan, so you do not need to worry about rates increasing elsewhere.
More worryingly, there are other borrowers and would be buyers who are being put off by reports around the tightening up of the mortgage process after the Mortgage Market Review. Whilst it is true that some borrowers will find it difficult to meet the new affordability tests, for most there are still some very good options around.
The key for those who are unsure or worried about the impact of rate increases is to look for an independent mortgage broker who have much more options available than just those from your current bank, especially if you are contracting, self-employed or feel unable to go through a “tick-box” route.
Moreover, broker’s processes will be much more slick and speedy, rather than waiting 2 weeks for an appointment with a branch based adviser to go through a 2 or 3 hour scripted interview process after which there is often still no definitive answer.
It seems sensible for borrowers to look at their situation sooner rather than later, due to the fact that SWAP rates, (which determine the cost of fixed rates) and therefore lenders mortgage rates normally increase before an actual base rate change, so the best deals around now could be gone for those who wait longer.
That said, competition between lenders in the short-term at least is still fierce and there should still be some highly competitive products available to borrowers certainly until the turn of the year. Lenders still want to hit their targets and will not want to increase rates unless they really have to.
As ever in the mortgage market however, if one or two main lenders move upwards, others are usually not far behind.
On balance it still looks likely that, barring yet another U-Turn or unexpected event, the next rate change will finally be an upward one and we may not see rates this low again for many a year. Borrowers who want or need the additional security a longer term fixed rate brings should therefore be assessing their options over the coming months.