Record low interest rates have made it an ideal few months to invest or remortgage. But as things slowly begin to climb, the time to take action is now.
As people flock back to the housing market with rising confidence boosted by the recent stamp duty cut, mortgage rates continue to be extremely favourable. From first-time buyers to property investors remortgaging their portfolios, the landscape is largely positive for borrowers.
Earlier this month, the Bank of England also announced it would hold its base rate at 0.1%. This historic low level is likely to keep banks and building societies from drastically upping rates in the near future.
However, new data released by MoneyFacts reveals that mortgage rates are already beginning to creep back up. What’s more, product availability has decreased slightly, reducing choice for some borrowers. This is particularly prevalent for higher risk purchases, and those with higher loan to values (LTVs).
Current rates and products
The number of products available fell by 202 on 1st August compared to last month. Since the beginning of March, there has been a 2,696 reduction in products on offer, which is a 48% decline.
In terms of rates, the table below from MoneyFacts shows the current picture across the market.
|Mortgage market analysis|
|60% LTV||Two-year fixed average rate||1.71%|
|Five-year fixed average rate||1.98%|
|70% LTV||Two-year fixed average rate||2.20%|
|Five-year fixed average rate||2.48%|
|80% LTV||Two-year fixed average rate||2.22%|
|Five-year fixed average rate||2.47%|
|90% LTV||Two-year fixed average rate||3.07%|
|Five-year fixed average rate||3.36%|
|Data shown is as at 1.8.20, unless stated otherwise.
Source: Moneyfacts Treasury Report
Average rates on two- and five-year fixed deals for all LTVs have risen by 0.09% so far this month. While only a slight uptick from July, it will make a difference to borrowers’ monthly bills. For those looking at LTVs of 85%, two-year fixed rates have risen by an average of 0.21% since July. The five-year average has increased further, by 0.23%.
While five-year fixed rates can seem more expensive on face value than two-year options, Eleanor Williams of MoneyFacts explains why opting for more long-term mortgages could prove beneficial.
She comments: “Taking advantage of the low base rate environment and locking into a five-year fixed rate now would ensure an ability to budget to a stable mortgage payment, and would protect from future interest rate volatility over the next 60 months.”
“Another consideration is that there are associated costs with taking on a new mortgage deal and despite a small fall in the average fee charged for mortgages (£574 this month, compared to £585 at the start of July), the lower monthly payment of two-year fixed options could easily be cancelled out by needing to pay further fees at the end of the 24-month initial term, coupled with the fact that rates in two years’ time may be rather different to those that are available today.”
For property investors in particular, housing investment is generally seen as a long-term asset. Those aiming for the highest levels of capital appreciation tend to hold their investments for longer. As rates could continue to climb, locking into a longer term deal could prove to be a good option.
What could happen to mortgages in the future?
As always, and particularly in the current climate, the future in the short term is uncertain. Since the government eased some lockdown restrictions, demand for mortgages has risen sharply. In recent weeks, this has been cemented by the stamp duty holiday, meaning people are wanting to act quickly.
However, with many employees still furloughed and others facing potential wage cuts or redundancy, future affordability could be an issue for some. In the coming months, the historic low mortgage rates we’ve seen could begin to wind up.
Eleanor Williams adds: “With reports that bank profits may be falling and providers needing to set more funds aside for further coronavirus planning and potential defaults, this could signal the end of the historic low mortgage rates of recent months. Therefore, those looking to secure a new deal now may wish to move swiftly.”
“The role of an experienced, independent adviser has never been more pivotal in ensuring borrowers are able to make an educated choice about the right product for their circumstances and priorities. With criteria and underwriting requirements being updated with a similar regularity to mortgage products themselves, being supported and guided through the mortgage application maze by a professional with access to the most up-to-date information would be wise.”
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