Bank of England base rate increased to 0.5% — don’t panic!
The recent increase of 0.25% in the Bank of England base rate has caused many to reflect on what the best way forward is now when looking at their personal finances.
While the bank base rate is often a good indicator on the state of an economy externally and particularly internally, trends in swap rates are often an earlier and stronger indicator of what is likely to happen to the cost of mortgage finance. As David Whittaker suggested, the increasing trend in five-year swap rates is what is more worrying.
The indications are that the repetitive rhetoric of interest rate increases over the last five years may finally be coming to fruition and those that have enjoyed insanely low base rate trackers and underwriters targeted on the completions in the early ’00s will now be forced to weigh up the opportunity cost of not acting immediately.
At present, it would be easy to argue we have seen the best of the good times based on swaps rates. However, many lenders may well have hit their lending targets due to stronger than expected demand earlier in the year while others may be pricing up towards the festive season to help maintain customer service over the holidays.
The lenders falling into these brackets may only to be competitive again once new lending objectives are set for 2018. At this point we could well see a return to pricing (mortgage rates) we saw a couple of months ago if the wider economic environment is stable.
In fact, with a number of new lenders in the market looking for customer and broker recognition we could potentially see new historical lows in 2018 for the cost of mortgage finance if the perception is that short to mid-term economic stability has been found.
Many borrowers may need to adjust to how lending is structured now following the huge regulatory shifts of MMR (Mortgage Market Review), MCD (Mortgage Credit Directive) and the PRA (Prudential Regulation Authority) Buy-to-Let rules.
My advice is really quite simple; the sooner you start researching the new landscape the better informed you will be to make a decision when the time finally comes — whether that be in 3 months or 3 years. Many mortgage advisers/consultant/experts that you are likely to speak to have never experienced a base rate rise in their professional careers. It will be important you pick the best person to help inform your opinion.
There are a plethora of reputable news sources out there to keep your knowledge of the mortgage market up to date. Also, online tools such as the Burrow Mortgage Report can give an excellent understanding of the products available to you, taking into account your own personal circumstances.
Written by Sevve Stewart
