Mortgage rates are influenced by many things, including how much the lender has to pay to borrow the funds they lend to you; their perceived risk of lending through to the overall cost of providing the mortgage product such as fees charged and of course, the level of competition for specific consumers.
However, a big influence is also the bank base rate as this can impact on all of the above. And having lived with all-time low interest rates of 0.5% over the last nine years, over the summer they fell to a further low of just 0.25%. Astonishing!
So the key question every existing and future borrower should be asking is “can mortgage rates ever go any lower”?
The reason this is important to know is that one of the biggest questions I am asked is ‘when is a good time to buy?’ In the main, most people think it’s when property prices are ‘at their lowest’. However, another consideration is being able to ‘lock in’ low-cost borrowing as this can substantially reduce the amount it costs to run an investment property, fund your first home or trade up to a property you have always dreamed of living in.
And rates have dropped substantially.
Back in 2012, mortgage rates for high loan to values of 90-95% were around 6% and for 60% around 3%. Now both of these average rates have dropped by half.
This means, for every £100,000 you borrow, at 6% over 25 years using a repayment mortgage, your monthly cost would be £651.88, whereas today it will have dropped to just £478.56. This represents a saving of over £173.32 a month or over £2,000 a year. Alternatively, it means you could potentially borrow more money within the confines of the current affordability rules.
In addition to these great rates, we are also seeing long-term fixed rates of 10 years which can be under 3% (subject to terms and conditions) meaning if you are 56 and planning to retire at 66, you can now lock in your mortgage to a set rate and hopefully pay it off before you retire, without potentially having to worry about the rate or payments varying at all.
So if you aren’t on the ladder yet or you haven’t re-mortgaged over the last 12 months, then it is really worth reviewing your mortgage rate now and in the future, and considering whether to lock in a good deal now as it may well be difficult for rates to go much lower.
Brian Murphy, head of lending for Mortgage Advice Bureau’s view is: “now is a good time to look at longer-term mortgage opportunities. Not only have the rates come down substantially, but some lenders will lend for 10 years with a 5-year break clause, meaning if things do change, you are not locked in for too long.”
With so many changes to the mortgage market over the last few years and more likely to come, it is worth contacting your broker to make sure your current mortgage is delivering the best value possible.
Mortgage Advice Bureau has access to mortgage products from more than 90 lenders. If you are looking to buy your first home, move-house or remortgage, our advisers are on hand to offer our expert advice, either face-to-face or over the phone.