Mortgage interest rates are falling

Wednesday, 25th November 2009 14:45 - by Resident IFA

Mortgage interest rates are at their lowest level for a good few months, having fallen back since July. This is great news, the disparity between the Bank of England (BoE) ‘Base’ rate of interest (currently 0.5%) and, say, a decent 3-year Fixed rate (Based on moving home at a loan-to-value mark of 85%) of 5.79% being an alarming 5.29%. Tracker rates (variable) are around 1% lower than this, it seems. This is great news. In the couple of weeks since I first undertook some mortgage product research for a friend of mine, I can clearly see a decrease of at least 0.2% among the most competitive lenders. This will make a welcome change if the retail mortgage market is ‘thawing’ somewhat. This has to be put into context against those with a bit more equity in their property. Having a brief look at one of lse’s competitor websites, a person with 40% equity appears able to obtain a 2-year Fixed rate product at 3.65%. Looks better and better, doesn’t it? The British Bankers Association (BBA) reported almost double the number of mortgages approved last month compared to that in October 2008. This evidences the return of buyers to the market and, in turn, that lenders have to come out of their shells. The greater number of applicants back in the market for mortgages forces lenders to regain a little of their competitive streak, jostling for a share of the newly-enlarged market. Now, I am not suggesting for a second that their Underwriting should be anything other than responsible and circumspect...none of that 5 times income malarkey...but a little competition to encourage interest rates to return to a more normal relationship with the Base rate is a good development. From my perspective, I have arranged only 4 or 5 mortgages this year, and have now seen two mortgage appointments in the last three working days. I think this ties in well with the momentum in the mortgage market I described above. I am intrigued to see how interest rates develop in the next 12 months or so. Although the BoE rate shows precious little sign of moving at present, it will only take a reasonably small move of 2.5% for someone on a 3.75% (currently) Tracker to advance to 6.25% and possibly be ‘affordability-shocked’...my term, you heard it here first. There can be no doubt that just as interesting times are ahead as we have experienced in the recent past. Until next time...