by Mark Johnston
Are Mortgage Rates Close to Bottoming Out?
Just after that financial crisis mortgage rates had been pushed up by the lack of competition in the market and yet more bad news from the eurozone and banks.
But thanks to the launch of the funding for lending scheme mortgage lenders continue to offer record breaking rates as cheap money filters through.
After the schemes launch lenders went head to head to offer best buy mortgage deals that hit the headlines and reached record lows. Many said rates had bottomed out as five-year fixes dipped under 3 per cent and two year deals under 2 per cent.
Now they have gone even lower, as 2013 has seen renewed vigour from lenders looking to top the best buy tables by constantly shaving a little more from their rates.
However, the lowest fixed rates have changed little over the last few months, despite some lenders managing to feature in best buy tables by bringing in a new deal with a rate 0.01 per cent below the previous lowest rate.
Borrowers should note that topping the best buy tables is not always the guarantee of being the best mortgage.
Ray Boulger, of mortgage broker John Charcol, says “Mortgage rates have been fairly stable over the last month”.
Some experts feel that low rate mortgages could stick around for some time if the Bank of England has its way, with a heavy hint that base rate will not be going up any time soon, perhaps for as long as three years.
Money markets now forecast the first hike from the record low 0.5 per cent base rate may come in 2016.
Economists call a rate rise slightly earlier, but the consensus is not before 2014 to 2015. After this, base rate is expected to rise slowly and gradually, as the Bank of England fears damaging the weak recovery.
Banks are sitting on a pile of cash from the scheme and have the firepower to boost lending and cut rates further, whether those for borrowers with big deposits can go any lower remains to be seen.
Therefore lenders certainly have room to push rates down further with more money to lend, but there is no guarantee that they will do so though and many are likely to use chunky margins to rebuild balance sheets.
Research shows that three in four mortgage brokers think that the fixed rate market has bottomed out and that the only way is up for mortgage rates.
Many brokers therefore believe that the scope for rates to fall from current levels is negligible, whereas the scope for increases is significant.
In short then it appears that the message for consumers is that if you want a fixed rate mortgage there is nothing to be gained by waiting and a very real risk you will end up paying more if you do.
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