Bank of England Maintains Bank Rate at 0.5%
It’s become very difficult to gauge when the base rate will start to increase, and expectations from the experts tend to change each time the Bank of England makes an announcement or comments on this.
The current thinking is that the base rate will start to increase very gradually in the beginning of 2015, and will be at about 3.5% in three years.
What this means when you have a mortgage, is that people will be paying between 4.5% and 7% on their mortgages, if you take what lenders are charging today and increase this by the same amount as the forecasted increases to the base rate.
Today, someone with a 40% deposit can get a mortgage form HSBC that starts at only 1.49%.
It’s a bit risky, because you’re tied in to the deal for two years with penalties, and it’s variable, so it’s very likely to increase before you have a chance to move to a fixed rate without paying a penalty.
At the other end of the spectrum, mortgages where you only need a 5% deposit are very expensive.
One building society, the Saffron, offers a 95% mortgage on a two years fixed rate of 4.77%.
That’s 4.27% higher than the current base rate, if you were to apply the same margin above base to a 3.5% base rate, which is what it’s forecast to be in five years, then you’d be paying 7.27% on this mortgage in five years’ time.
A two-year fixed rate protects you from rate rises for a short time, but people shouldn’t be under any illusions that they’re likely to be paying more for this kind of mortgage in two years, and they shouldn’t stretch themselves to the limit when case rates are as low as they are today.
Banks take this into account now when they decide how much to lend you, so even if you feel you can afford more than they’re approving you for, they are predicting what you’ll have to pay in a few years, and making sure that on your current income, it won’t be too much trouble.
It’s still very difficult to predict how different banks will react to your application. We had a recent client where he approached a high street lender, to be told that they don’t recognize any bonus income as going to support what he wants to borrow, and declined him for the mortgage amount he wants.
We were able to go back to that same bank and present his case showing the solid track record of his bonus income, and had this bonuses partly recognized which got us to the amount he needed.
There’s been some talk in the press about banks limiting you to a multiple of four times your annual income, while it’s true that some are doing this, others aren’t, so if you’re having trouble and thinking that all banks are reining in on lending, it’s worth a conversation to explore with us whether there is a deal that makes more sense for you.
The age-old question of whether to fix or not to fix is still discussed. Right now, nothing much has changed on fixed rates with a 40% deposit you can still get close to 3% and with a 25% deposit more like 3.3%. However, we’ve seen swap rates coming down in the last month, so we wouldn’t be surprised if banks were to come out with slightly cheaper fixed rates for a while after the summer.
If you’re not sure what to do, just contact your Mortgage Manager, submit an enquiry, or call us on 01305776311.This entry was posted in News. Bookmark the permalink. ← Coventry launches 90% LTV range from 3.95% A new day for bridging regulation →