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The prospect of a base rate rise seems to have again be pushed into the distance recently through slowing world growth, low oil prices, euro zone issues and continuing low inflation. The consensus view now seems to be pointing towards a rise in late 2016 or early 2017, where it is generally agreed that even when rates do move it is likely to be gradual. So what does this mean for mortgage rates?
Prospective home owners and existing borrowers are perhaps understandably nervous about rate rises where now over 90% of mortgages are arranged on a fixed rate basis. It is worth remembering the rates at which lenders ‘buy in’ money for their fixed rate mortgages are not linked to bank base rate and so the deals available can be very changeable due to market conditions.
We have seen some historic low mortgage rates but some of these have recently been withdrawn and as the likely date of a base rise becomes more certain it is inevitable that mortgage rates will rise in the preceding months. Those looking for a new mortgage or to refinance an existing one, would be wise to seek advice as soon as possible. By waiting for bank base rates to rise before making a decision, those looking to be in the ‘low interest mortgage boat’ may find it has already sailed.
What about the outlook for the Buy to Let market in 2016? Landlords have certainly been hit hard by the additional 3% stamp duty levy and a reduction in potential tax relief, so BTL appears to be in the spotlight as a way for the government to increase revenue and to help take some of the heat out of the property market.
No doubt there will be a flurry of activity in the first quarter as landlords look to complete purchases ahead of the deadline before stamp duty increases on 1st April. The coming months will reveal how lenders react, but some have already changed their criteria to reflect landlords increased costs. After April 2016 we may see slower activity, however with a shortage of property and high tenant demand, a good Buy to Let investment will retain its appeal for many.
Finally, to the new homes market where government initiatives are increasingly available to support both first time buyers and home movers through a range of Help to Buy schemes. In particular Help to Buy Equity Loans are proving very popular and the government is now committed to the scheme until 2021. An equity loan of up to 20% is available to support the house purchase aspirations of those with only a limited 5% deposit, meaning borrowers only need to obtain a mortgage of 75%. In the Autumn Statement the government announced the scheme would be increased to 40% for buyers within the Greater London area - a real boost for those struggling with higher London prices - which will launch on 1st February.
It is great to see that Banks and Building societies are increasingly keen to lend in the new homes market, either through support for government schemes or increasing their loan to values meaning borrowers need lower deposits to buy, and long may that continue.
The Stonebridge Group is one of the UK’s largest independent mortgage brokers.
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