As a homeowner, you can breathe a sigh of relief as the coming months promise to bring good news in form of mortgage lending rates. Due to stiff competition between mortgage lenders, home loans continue to fall, and financial experts predict super-cheap loans in future.
Partly to do with Brexit Polls
Ever since the Brexit polls in June that sent stock markets tumbling, signs were evident that the cost of borrowing was going to remain low. Short-term loans (5-year fixed rates) especially, were already falling below 2 percent as early as then.
Not long afterwards, the Bank of England cut base rates by half to 0.25 percent, and also furnished the economy with an inflow of cash. To further encourage cheap loans for borrowers, they put in £60 billion in quantitative easing, £10 billion of corporate bond purchase and £100 billion for a new scheme, “Funding for Lending-style”.
Today, rates have continued to drop with more finance experts predicting figures as low as under 1 percent. The latest cuts from the Bank of England and the market’s perception of low risk situation are major reasons behind the forecast.
Mortgages less than 1 percent
At the moment, a standard 2-year 75 percent loan-to-value (LTV) mortgage costs 1.6 percent. A study by Berstein reveals a similar 80 percent loan-to-value (LTV) could drop further to 1.1 percent in the coming months.
According to Chirantan Barua, if you own 20 – 30 percent cash with a decent credit profile, you can get a fixed rate mortgage for less than 1 percent sooner than you think.
Already, HSBC is giving a mortgage rate of 0.99 percent for 2 years to customers who have at least a 35 percent deposit. However, no other banks have yet begun to offer any rates lower than 1 percent.
Rate Cuts by Competition
Besides banks passing on BOE’s reduced base rates to customers, competition amongst lenders play a significant role in determining how low mortgage rates will go. Already, 75 percent of lending is controlled by six major players in the mortgage market.
How do lenders price mortgages?
There are a number of factors that determine how mortgage lenders price their rates. Some include:
- Interests they pay on savings– lower savings rates mean lower mortgage rates. Due to the current low savings rates, mortgage rates are sure to remain at rock bottom.
- Cost of funds- The interest rates banks have to pay in the money markets in order to borrow capital, also affect rates they set for homeowners. If money market rates increase, mortgage rates are bound to rise as well.
As experts continue to monitor mortgage rates, one thing is sure; homeowners and mortgage borrowers are likely to continue enjoying the benefits well into next year.