Mortgage interest rate cycle – will the cost of borrowing ever be this low again?


Independent Financial Adviser Patrick Goddard gives his view on the current market.
Economic fundamentals (i.e. the strength of the general economy and the jobs market along with the Help To Buy’ scheme and the stamp duty reforms) all combine to create an environment that encourages demand for housing and the confidence to borrow. 
There is continuing demand and limited supply – we have not been building enough houses for many years now, and this is most likely to have an upward effect on house prices. 
As people clamour to get in the market or move up-market, the increase in prices is driven yet further, as is the demand for mortgage borrowing.
This overview is evidenced by the latest Council of Mortgage Lenders housing commentary which reports gross mortgage lending in March at 21% higher than in February.  As wages inflation continues to outstrip price inflation and confidence is further encouraged by continuing low interest rates, so this upward trend is expected to continue.
So what does all this mean for individuals?

First time buyers
It would seem for anyone aspiring to buy their first time home that now is a good time to jump in to the market, and generally it is. 

The Help To Buy scheme has made it possible to once again buy a house with a minimal deposit, and as rents are becoming more expensive there are strong reasons to want to buy.
The rates of interest now available to first time buyers mean that mortgage costs are often surprisingly affordable.  However, in practice it is not always so simple. 

Even getting together a 5% deposit as well as the necessary costs associated with house purchase can be a huge challenge for many young people.  Also, until an individual is settled in terms of area or career it may be better for them to have the flexibility of renting. 

Unfortunately for the first time buyer it is unlikely that home acquisition will become any easier in the future.
Homeowners
For those who already own their own home and who still have a mortgage, a big consideration is the current interest rate environment. 
Many people now have good equity in their homes, and as competition between lenders heats up it may be worth considering if they have the right mortgage arrangements. 
For example, is your mortgage on a fixed or variable rate? Have you been paying interest only, and do you need to change this? 

A huge number of the mortgages which lenders have on their books are being paid at the lenders standard variable rate (SVR).  This is often much higher than people need to pay – for example Halifax SVR is 3.99%, Santander is 4.74%. 
For those with reasonable equity it is now possible to more than halve their interest costs, for example a five year fixed rate at 2.19% or even 10 years at 2.99%.  In terms of the interest rate cycle it is hard to see how the cost of borrowing will ever be lower than it is right now.
There are lots of considerations that will need to be taken into account before committing to buying a home or making changes to your current arrangements.

At Manning & Company we have the experience and knowledge to help you ask the right questions and find the right answers.  Plus, as Independent Financial Advisers we have access to the whole market and can find the right solutions for your individual circumstances.   

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