In August 2016, the Bank of England dropped interest rates to a record low of 0.25%, pushing mortgage providers into fierce game of “how low can you go” in order to attract customers and trump their competition. This mortgage limbo has been pushing mortgage rates lower and lower, with January 2017 seeing a record average low for a two year fixed mortgage – 2.31%. Yet many providers have already dipped far beyond this average rate in a bid to compete in our current dog-eat-dog mortgage market.
In June 2016, HSBC unveiled a 0.99% two year fixed mortgage, dropping rates below 1%for the first time in history. This headline news rate was short-lived, however, and HSBC increased their rates shortly after as a result of overall cost rises. But are these super low mortgage rates likely to keep popping up, or is the mortgage limbo finally drawing to a close?
Up or down?
There’s a lot of uncertainty facing the mortgage market in 2017. While the Bank of England has showed no sign of raising our rock bottom interest rate in the near future, a huge array of other factors could affect the rates offered by providers.
From huge geopolitical uncertainty stemming from the looming figure of Brexit and the controversial election of Donald Trump, to rising swap rates which make it more expensive for financial institutions to lend to each other, bumping up costs for consumers in turn.
Yet, while many in the industry hedge their bets and foresee increasing mortgage rates on the horizon, others do not believe that rates will rise any time soon. That’s because signals from the marketplace do not indicate that significant rises are imminent. January 2017 saw some record low rates and the continuation of the same “bargain basement” rates witnessed throughout the latter half of 2016. Nobody could deny that the future is murky, but as yet, no hikes have been made.
No sharp hike has occurred yet, but there are threats to rock bottom mortgage rates beyond rising swap rates. For example, if runaway house prices become a risk in the UK due to low mortgage rates, the Bank of England has made no bones about its intention to raise mortgage rates by targeting banks with new capital requirements or costs.
The safe bet
So should we anticipate mortgage rises in the future? The safe money appears to be on “yes”. It seems unlikely that mortgages will drop beyond their current lows and very likely that geopolitical turbulence or bank intervention will trigger rates to rise.
When this will happen is uncertain, it may be imminent, or it may be months in the future, however, the safest bet for consumers right now is to source the lowest cost and longest term mortgage available ASAP. This will ensure buyers benefit from the “mortgage limbo” and enjoy its unprecedentedly low rates for as long as possible – while they still can.
Carl Shave is a mortgage expert and seasoned commentator on financial matters. He has worked in the mortgage industry for 20 years, manages his own independent mortgage brokerage for 15 years and is a Director at Just Mortgage Brokers.