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BoE’s base rate rise is driving mortgage pricing

Mortgage pricing is continually shifting and that is likely to be even more frequent in the wake of an increase in the Bank of England base rate.

As lenders announce their position on the standard variable rate, which has tended to mirror the rate rise in most cases, the rest of the portfolio can also be subject to changes.

However, that may not necessarily be in the direction that borrowers might expect.

As we head toward the final quarter, lender attention is on maintaining a strong position in what is an extremely competitive market. As a result, many lenders have actually been making rates sharper where possible. The other week, Coventry Building Society improved some of its medium to longer term fixed-rate options, namely its five and 10-year products.

These were already well priced, so even shaving a small amount off the range means that some are right up with the very best. For example, its five-year rates start from 1.89 per cent, and its lowest 10-year fix is now 2.35 per cent – a market leading rate.

These benchmark rates are admittedly limited to 50 per cent loan-to-value, but deals edging up the LTV scale are still very favourably priced versus the competition.

The incentives that have become an expectation of any Coventry deal are available, providing free valuation and free basic legal work for remortgage borrowers. We have seen steady growth in the popularity of five-year fixed rates as borrowers look to take advantage of the low rates on offer, not only making a monthly cost saving in many cases but also protecting against future rate rises.

However, 10-year fixes remain something of a niche area despite the exceptionally low rates on offer. Many of the concerns can be put down to understandable anxiety around locking in for so long and the impact that can have on flexibility in the future. Many long-term fixed rates will carry high early repayment charges and although generally portable to another property that doesn’t give guarantees.

Coventry clearly understands that this can be a key challenge for borrowers and has built in an added benefit in some of its fixed rates.

Low LTV 10-year fixed rates not only offer very competitive rates and the usual incentive package but only tie borrowers in for the first five years of the deal. That matches the kind of lock-in that many borrowers are happy to consider but leaves them with longer term security that they can reassess if necessary without incurring a penalty. It is a very solid option for those borrowers prepared to step up to a slightly higher interest rate to lock in for the longer term.

Source: FT Adviser

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Rate rise likely to have minimal impact on housing market, say agents

Rate rise should have little effect on the property market or buyers’ intentions, according to most – although not all – agents. Some lenders have already raised their fixed and tracker rates with others likely to do so on Monday.

Paul Smith, CEO of Spicerhaart, said of the rate hike: “It will have minimal impact – 0.75% remains a historically very low base rate and this small increase is unlikely to affect the majority of borrowers.

“It is even more unlikely to make buyers think twice about buying property, given the cost of renting and the UK’s commitment to investing in bricks and mortar.”

Guy Gittins, managing director of Chestertons, said that the impact would be “modest” and unlikely to alter anyone’s decision to buy.

He said that it might instead inject a little more urgency into moving so that buyers could secure a mortgage “while lending remains at incredibly cheap rates”.

Rob Clifford, group commercial director at SDL, which operates lettings, property management and mortgages businesses, said: The cost of borrowing remains exceedingly low and is still amongst the cheapest since records began.

“Hopefully, industry commentary can now switch to the real barriers that are currently impeding a free-flowing housing market – and that is supply and demand and the level of initial deposit required.”

Ishaan Malhi, CEO of online mortgage broker Trussle, said that owners on variable rate deals should switch if they could.

He said that the average home owner on a variable rate with £200,000 to pay off on their mortgage would see repayments rise by £300 over the course of a year.

Russell Quirk of Emoov was among those agents sounding a worried note, saying: “Mark Carney really is pulling the rug from beneath the nation’s aspiring and existing home owners. The Government’s failure to build any meaningful level of housing stock is pushing prices ever higher and now the Bank of England has hit them with an increase in interest rates that will see mortgage payments increase, while resulting in a pitiful return on their savings.

“Although today’s hike will be digestible for many, it should act as a warning shot for UK home buyers and home owners. Yes, the cost of borrowing remains low, but interest rates are now at their highest in a decade and could continue to snowball, putting many in a perilous position when they come to buy or remortgage.

“Those looking to buy should be strongly advised against the temptation of borrowing beyond their means, as well as the importance of securing a fixed rate mortgage.”

Source: Property Industry Eye

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Mortgage rates jump to near two-year high

Two-year mortgage rates have hit their highest level since July 2016, analysis has revealed.

The average fixed-rate on a two-year deal now stands at 2.5%, according to Moneyfacts.

Rates have steadily been rising since September 2017, when the average two-year fix was priced at just 2.17%.

In November the Bank of England raised the base rate for the first time in almost a decade, and speculation about another rise in May has helped drive up mortgage market costs in recent weeks.

Charlotte Nelson, from Moneyfacts, said: “The mortgage market is experiencing a period of upheaval, with rates that were once at all-time lows now starting to rise.

“In the lead-up to May’s base rate announcement, both the interest swap and Libor markets have started to factor in a potential rise.

“Just like before the base rate rose in November, providers now have little choice but to factor in these higher costs into their mortgage pricing.”

A number of lenders have been raising rates in recent weeks, with Sainsbury’s today upping costs across a number of deals.

However, Bank of England governor Mark Carney has this week hinted that a base rate rise is not a foregone conclusion.

Nelson added: “As well as the latest fall in inflation, Mark Carney suggested in a recent interview that Britain leaving the EU has cast doubt over an imminent rate rise.

“If the markets do cool off as a result, it will be interesting to see if mortgage rates will follow suit in the shorter term.”

Source: Your Money