Taylor Scott International News
Home buyers in the UK, including buy to let investors can look forward to a sustained period of low borrowing rates, according to housing market lenders, due to the lowest ever bank base rate. The decision by the Bank of England to reduce the interest rate to 0.25% and the possibility of it going even lower, brings to an end the longest period of no change in rates since the War/post-War years of 1937 to 1951. Bank rate was cut from 1% to 0.5% in March 2009, and remained there till it was cut again last week. The Council of Mortgage Lenders (CML) points out that mortgage rates have fallen significantly over that period. The average mortgage rate over that period has fallen from 3.8% to 2.9%. It also points out that the bank rate is not the only influence. Funding costs, levels of competition, targeted levels of profitability, and an assessment of current and future market conditions to price appropriately for risk are also relevant factors. So it also follows that a rate cut does not automatically feed through on a like for like basis to mortgage rates. Future pricing will depend on all the factors above and is a matter for individual lenders. Around 50% of borrowers are currently on fixed rates and will therefore see no immediate impact on their payments in any case. Of the remaining 4.9 million home owners with a variable rate mortgage, over 1.5 million have a tracker rate mortgage and these borrowers may automatically see a rate reduction depending on their mortgage contract but some will have a lower level below which rates cannot fall. For new borrowers, mortgage pricing is extremely competitive and set to remain so. However, it is worth noting that the Bank has also been urging borrowers to plan ahead for the prospect of higher rates in the future and the CML said consumers should not assume that just because rates are low now, they will necessarily stay that way for a prolonged period. Recently, fixed rates have been accounting for about 90% of new lending, and while this is partly because they have been priced attractively, it's also likely to reflect a consumer appetite for certainty about outgoings. CML director general Paul Smee believes that some hesitation on the part of consumers thinking about buying property is understandable against the backdrop of recent political uncertainty. However, mortgage lenders are well capitalised and resilient and open for business to lend, in line with consumer demand as and when confidence levels bounce back. ‘Since the last change in official rate in March 2009, the average mortgage rate has already fallen from 3.8% to 2.9%. This confirms that bank rate is not the only influence on mortgage pricing; we feel that the mortgage market is at present well capitalised, resilient and open for business. Housing market fundamentals are sound,’ he explained. ‘So, we see the cut as a wider reaction to the economic effects of… Taylor Scott International
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