Avoiding a bit of a fix
While the housing market seeks to return to some kind of normality in the weeks following the EU referendum and holiday season, new interesting considerations are now informing our judgments on our home financing options. Not so long ago, a 2 year fixed rate or even a tracker mortgage would have been the default option for anyone considering a home purchase or remortgage but now for homebuyers, who are putting their money and futures on the line, the 2 year fixed rate mortgage may not offer the rewards of longer fixed rate terms.
Behind this assessment is the fact that the new principal risk with a two-year fixed-rate loan is that borrowers will potentially need to remortgage just as our divorce from the European Union is completed. Timing, of course, is everything, but most political observers at the moment believe it is going to be very difficult for the government to 'put off ' executing Article 50 beyond Easter of next year.
Triggering Article 50 will set in motion a series of negotiations that may have all sorts of outcomes. Avoiding having to refinance your home as these conclude and world markets cast their verdict on our currency, equity, and perhaps most importantly capital markets may be a prudent step.
One option then will be to embrace a three or five-year fixed-rate loan. Although more expensive than a two-year deal, these longer fixed term products will offer more certainty in this scenario. No-one knows what the potential rollercoaster ride for bank base rate over the next two years will look like but that is exactly the point. We have seen the Governor react to the vote already but the Bank of England will be keen to manage the surprises and shocks to the economy and interest rates are their primary weapon of choice.
Lenders are happy to offer low rates at the moment to pull in the business, and if we consider this in the context of more lenders arriving in a market that in terms of transactions appears stuck around 1.2 million, we have the ingredients for some stiff competition in fixed rates over the coming weeks and months. However, there will inevitably come a point when banks and building societies can't afford to lend cheaply and will have to raise rates. It isn't imminent but neither is it impossible that during the negotiations, further falls in the pound drive up inflation and consequently interest rates.
All of this, of course, makes the requirement for advice ever more acute for anyone considering a mortgage and means brokers have to keep a keen eye on the macro-economic events that are affecting our economics at the moment.
If you have any other queries you'd like to discuss with us, please don't hesitate to get in touch with our Intermediary Support Team by calling 0345 602 2338 or via webchat (Monday to Friday, 8am to 6pm).
This information is for use by authorised mortgage intermediaries only and should not be relied on by customers.