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Fri 06 Jan 2017

January News

The End of Low Mortgage Rates?



Base rate may still be at a record low of 0.25% and mortgage rates at equally as low levels, but are the days of cut-price mortgages coming to an end? Unfortunately, it looks as though this could be the case, with our latest research revealing tentative signs that the end of low mortgage rates is nigh.


The figures, taken from our latest UK Mortgage Trends report, reveal a slightly mixed picture for average mortgage rates at the moment, as although the five-year fixed rate continues to fall, the two-year equivalent remains unchanged - and there are signs that next year could signal the start of rate rises once again.


The average two year mortgage rate remained at 2.34% this month, signalling the first month of zero movement since January this year. Despite remaining at a record low, this lack of movement halts the run of rate cuts that had been recorded since June, and hints that a change could be on the way.


This is just the average, too, and looking closer at the figures shows that change could already be happening. Indeed, our data shows that 17 banks and building societies have increased their rates in the last month, including big names such as Nationwide, Halifax, TSB, Virgin Money and HSBC - and the latter even withdrew its record-breaking 0.99% two-year deal.


The average five-year fixed rate continued to fall, down by 0.02% to a fresh low of 2.96%, but again, averages can be misleading. Many providers are finding they have no option but to begin raising rates - which could add hundreds of pounds a year to typical repayments - and much of it seems to be down to wholesale costs and accompanying uncertainty.


In the last couple of years, mortgage and SWAP rates haven't been that closely aligned, with competition being the overriding influence on pricing decisions. Now, however, the level of uncertainty in both global and UK markets (and associated risk on household finances) suggests that wholesale costs could begin to exert additional influence, which means any increase in SWAP rate could lead to a reaction from mortgage providers.


This could explain why some providers are already raising rates, with some even blaming wholesale costs for any changes. There's a general feeling that funding is tightening, and with it, an expectation that mortgage rates will begin to rise, so while averages continue to remain at or near record low levels - the average two-year tracker rate has also fallen this month, down 0.04% to 1.98%, the second-lowest on record - this may not be the case for long.





House Price Growth Expected to Slow


UK house prices will continue to rise in 2017 but at a much slower rate. 


According to the Halifax UK Housing Market Outlook, annual house price growth is predicted to be between 1% and 4% by the end of next year, compared to the peak of 10% seen last March. 


Slower economic growth, employment pressures, a squeeze on spending power, and affordability constraints are all expected to reduce housing demand during the next 12 months. 


However, according to the forecast, UK house prices should continue to be supported by an ongoing shortage of property for sale, low levels of housebuilding, and exceptionally low interest rates.

Affordability problems in London suggests that price growth will slow more sharply in the capital than elsewhere in the UK during 2017. 


The report also suggests that reduced housing demand is likely to result in lower house sales as more people respond to weaker economic conditions and the deterioration in housing affordability by not buying or moving home. 




Average 5 Year Fixed Under 3%


Homeowners have been able to reap the rewards of falling mortgage rates over the last few years, and things have been turned up a notch in recent months as competition has fuelled substantial rate cuts. 


It isn't just the two-year sector that's benefiting, either, with our latest research finding that the average five-year mortgage rate has fallen below 3.00% for the first time on record.


Our figures show that the cost of a five-year deal has fallen significantly over the past year, with many providers launching their lowest ever rates in the face of growing demand from consumers, many of whom want that kind of long-term certainty. This competition has seen the average five-year fixed mortgage rate plummet below 3.00% for the first time on record.


In 2011, the five year fixed rate on average was at 4.68% whilst 2 years ago the rate was 3.95%.

With the gap between the average two-year fixed rate (2.35%) and the average five-year fixed rate standing at just 0.65% today, borrowers may now have the ability to opt for the security of a longer term fixed rate with little extra cost to their monthly repayments.





End of Help To Buy Guarantee


On 31 December, phase two of the Help to Buy initiative was withdrawn from the market. It's certainly done wonders for the high loan-to-value (LTV) sector and many will be wondering what effect its withdrawal will have on the market, so we thought we'd take a look at the significance of the scheme and the effect it's had.


The Help To Buy Mortgage Guarantee Scheme has been a hugely positive influence on high LTV mortgage lending. The number of suitable products has soared, rising from 56 in October 2013 (when the scheme was introduced) to 269 today, giving first-time buyers plenty of choice when it comes to securing that all-important mortgage.


Not only that, but mortgage rates have dropped dramatically - in line with the market as a whole - with the average rate for a two-year mortgage at 95% LTV now at a staggeringly low 3.91%, while the five-year equivalent clocks in at 4.84%. Both of these have fallen substantially in recent years, so there may never been a better time to take that first step.


We are seeing a number of mortgage lenders continue to remain in the 95% LTV space after the withdrawal of the Help to Buy scheme, however, lenders due to the increased risk are being more cautious simultaneously.