What is the Current Base Rate Outlook?
With the news from over the pond that the Federal Reserve will again look to return to quantitative easing to stimulate their economy, and also recent comments from Adam Posen (MPC member) that he believed the UK needed to engage in Q.E. to avoid a prolonged slump, it seems ever more likely that Bank of England will follow suit.
The anticipation seems to be for this to happen in the first quarter of next year. As a result the markets have pushed their base rate increase forecasts back further still, unto the 3rd or 4th quarter of 2011. It seems the belief is that the actions of our American cousins combined with the upcoming fiscal squeeze from our very own Chancellor next month (with some £83 bn worth of cuts on the agenda), that rates need to stay lower for longer.
What Should You Do Now?
For those with mortgages this is of course good news as we should see rates, and therefore payments to continue to remain low for the foreseeable future. However it cannot last forever so there needs to be a number of considerations before identifying the right time to re-mortgage. Generally speaking the mortgage market moves 6 months before the base rate moves so the following should be contemplated;
Firstly house prices have eased off in the last 3 months. Some analysts are predicting further drops so if you are on the cusp of a notable loan-to-value tier (60%, 70% and 75%), be aware that rates move up at each level, but significantly so above 75%. If you have concerns over your house price and the base rate then be aware of these tolerances.
Secondly the validity of re-mortgage offers will differ from lender to lender but there are lenders that will keep the offer open for up to 6 months. Given that we can drag the application period for a month or more if necessary, you can secure an offer 6-8 months before you think rates will move.
If you plan to hold off for awhile make sure your credit is AAA. Any small misdemeanor at the moment can mean the best rates aren’t available to you.
If the economy goes back into recession is your job secure – could you be subject to a pay cut or part time hours, therefore making it more difficult to re-mortgage due to a drop in income? If you have any concerns or work in the public sector, again considering your options now might be frugal.
Where Are Mortgage Interest Rates Going?
Speaking to a number of internal treasury departments within the major banks, the message seems to be that they believe tracker rates are currently as low as they will ever be, and fixed rates aren’t far off with perhaps one more drop of circa 10-20 points. However there has been a lot of press in the last couple of days that lending will become more difficult again in the next few months due to lender’s fears over a double-dip recession and the ensuing unemployment that that could bring.
With rates starting from 1.99% for 2 year trackers and 2.99% for 2 year fixed rates for those who have at least 25% equity in their homes, it certainly isn’t a bad time to consider your options, especially as most lenders SVR (standard variable rate) are higher. There are also re-mortgage and purchase products available for those with 40% equity in their homes to be had at 2.19%.
For further details please contact your adviser or call us on 020 7940 4747.