by Mark Johnston
With the euro zone crisis and concerns that the UK could face a second credit crunch it is looking all the more likely that mortgage lenders will look to raise their rates.
Although it seems that many lenders have been more competitive in recent months the amount of lending in the market has not increased and could therefore fall back further depending on how the euro zone pans out.
Therefore the trend for ever cheaper mortgage rates is on the turn, which points to rate changes.
Some analysts state that mortgage rates have been moving to and fro consistently over the last 12 months and therefore these are hardly revelations. It is also worth remembering however that there is still no movement in the Bank of England’s base rate.
Andrew Montlake, of mortgage brokers Coreco, has stated that “the potential upside of rates getting lower is a small one, while the downside of rates getting more expensive once more is much larger”.
The Bank of England’s financial stability report revealed that mortgage lending has seen a profitability drop since 2009 as mortgage rates have not reflected the rising wholesale costs. With this in mind the report suggests that it may be during 2012 that a significant increase in banks lending rates occurs.
However, the Bank of England’s report also added that many banks have significantly reduced their reliance on wholesale markets and as a result may adopt a wait and see approach before introducing any significant hikes in mortgage rates.
Even in light of this report many experts still believe that it seems we have now passed the lowest point in the current interest rate cycle and that it now seems a sensible option to look at locking in to a rate at the moment.
These experts are urging home owners looking for a new mortgage to consider longer term deals as 2 year deals, for instance, may mean that the borrower will have to re-mortgage just as interest rates rise.
Simon Collins, a technical manager at mortgage brokers John Charcol, thinks lifetime trackers and 5 year fixed rates now offer many borrowers good value.
The Co-op bank offers a 5 year fixed rate deal at 3.59% for those with a 25% deposit, with no arrangement fee and the Coventry building society also offers a 5 year fixed rate deal at 3.58% for those with a 35% deposit, but it does come with a fee of £800.
Tracker deals are initially cheaper and the HSBC offers a lifetime tracker with a rate of 1.89% above the base rate, giving a current rate of 2.39% and has no arrangement or exit fees meaning when the rate raises it will be easier to switch to another deal.
David Hollingworth, of mortgage brokers London and Country, states “the bottom line for borrowers at the moment is that they could see rates continue to rise, so if they are considering a switch it would make sense to make a move sooner rather than later. As funding becomes scarce and costs rise, it is inevitable that the current upward trend in mortgage rates will continue”.
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