The Inside Edge
A Slow Down in Mortgage Rate Rises?
The theme for much of the latter half of April and the beginning of May was one of continued mortgage rate rises and the threat of an increased number of households faced with a significant increase in monthly payments. The knock on effect that this had would conceivably leave more households in the so called ‘mortgage trap’; unable to afford higher payments but not in a position to switch lenders as they were unable to meet stricter criteria.
However, there are suggestions within the industry today that the mortgage hikes may soon be coming to an end and Ray Boulger, senior technical manager at mortgage lender John Charcol leads the voices making this suggestion.
“I think that this upward rate movement that we have seen, we are probably fairly close to the end of that,” Mr Boulger said.
“We have seen over the last two months or so, a series of lenders continuing to push rates up – typically only by ten or 20 basis points at a time, but it is a steady increase – and most lenders have increased their rates several times over the last few months simply to try to stem the flow of business,” he added.
The reaction came after several weeks of mortgage rate hikes which have been tempered to some extent by cuts from some lenders. The overall picture tends to balance itself out, although that may not be welcome news for those in the ‘mortgage trap’ who have suffered at the hands of a recent increase.
“We are now coming to the stage where we are seeing some lenders put rates up but some lenders cut them, whereas a few weeks ago nearly all the rate changes were upwards,” Mr Boulger added.
“So there are signs that this upward movement in fixed-rates is coming to an end.”
The reaction comes in reply to a survey from Which? that pointed to worrying signs in the housing market with significant percentages of property owners facing difficult periods if their lenders were to increase their monthly payments. That survey showed that 70% of people interviewed held fears of prospective interest hikes while 14% were already having difficulty in paying their mortgage.
Elsewhere, monthly figures released by Nationwide claim that property prices fell by 0.2% in April and are now 0.9% down from the same period last year.
Overall, this may point to mixed news depending on where you are in the property chain. For first time buyers it suggests that this is a good time to get onto the ladder but if your variable rate is increasing and you can’t switch lender, news of impending cuts will come as little consolation.
How long do you think it will be before we see an increase in the bank base rate? As this, in my opinion, will add a further strain on a large number of households.
Are we going to have the situation where the UK will again be full of landlords who can’t keep up the payments. They should work out what they can repay. In the past interest rate are happy floating around 6% to 11% There is no way they can stay this low for very much longer.
A rise in base rate is not required at the moment because the banks have increaseed their margins so much. Before the crisis, when banks were competing hard for business, they were lending at around a 1% margin, now it is around 4% margin. I think their margins are only likely to increase even further in the forseeable future as the contniuing Euro crisis makes it more difficult for banks to secure funding. So payable interest rates will likely rise without an increase in the base rate.
It’s still difficult for first time buyers to get onto the ladder due to the amount of deposit they need to save for.