Improvements in UK mortgage rates

With the recent gloom in the mortgage market together with daily news reports on possible recession and increasing inflation in the UK, good news is a welcome relief for mortgage customers.

Since rates peaked in June the mortgage industry has seen a gradual fall in the pricing of both fixed rates and tracker rates in the residential market. This is especially true for customers who have either a 25% deposit for purchasing, or 25% equity when remortgaging, and a clean credit history.

If we are in a credit crunch, why would rates be dropping? Quite simply, demand for mortgages is currently very low. Month by month, reported mortgage lending is down on the equivalent 2007 figures. Like any other commodity, when demand falls price tends to follow.

The lenders are not, however, throwing caution to the wind. Small deposits for both purchasing and remortgaging are still attracting higher rates, and 95% mortgages remain difficult to obtain.

The Buy to Let market is also yet to feel the benefit of lowering interest rates. This is because the lenders still consider Buy to Let lending as higher risk and whilst rental yields are currently very strong, should a landlord suffer ‘down time’, where a property is un-let for a period of time, arrears could easily occur.

The good news for residential customers looks set to continue. Current forecasts predict interest rate cuts are likely within the next 12 months, some analysts suggest by as much as 1%. Business leaders have been calling for interest rate cuts for some months now but this has, to date, not been forthcoming from the Monetary Policy Committee at the Bank of England. Inflation continues to rise and a cut in interest rates could put further pressure on inflation figures. The government seem confident that inflation can be controlled, and once recovery signs can be seen the expected interest rate reductions should begin, easing pressure on businesses and putting a few pounds back in the consumer’s pockets.

Does the potential of interest rate cuts mean that variable rate mortgages are a good buy in the current market? Possibly, provided consumers are happy to accept the accompanying risks. Fixed rate mortgage sales have remained high due to the uncertainty in the mortgage market. Many consumers have been hit hard with increased monthly payments on expiry of their existing cheap mortgage deals, and fixed rates offer a stable platform to aide budgeting. For those with more flexible budgets, who are prepared for the possibility that interests could rise as well as fall, then a variable rate style of mortgage could save a lot of money in the next 12 months.

Clearly there are no easy decisions in the current market and careful consideration must be given to individual circumstances and budgets. A fee’s free whole of market mortgage broker will assess your needs and provide invaluable advice during this turbulent period.

Article by: Chris Baigent 08/08/2008

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