Soft or Hard? Not a major decision to make when, for instance, deciding on how you want your morning boiled egg? Where Brexit, our exit from the EU, is concerned, however, speculation on our type of exit – Soft or Hard – is affecting all aspects of the UK’s financial world, mortgages included. Even when we eventually know which option we’re taking their are likely to be major ripples throughout our financial sector – including mortgages.
Book that Fixed Rate?
Recent figures from the Bank of England show an 18 month low in mortgage approvals attributable to aftershocks from the EU referendum result rippling out into the housing market that’s before we’ve even triggered Article 50, that triggers the start of our exit.
Add to that the ‘Trump Effect’ and his promise of tax cuts and a $550bn increase in infrastructure building which, economists reckon, will force the US Fed to increase interest rates, with a knock-on effect to other world economies. A leading UK mortgage broker thinks that longer term fixed rate deals will be the first to go up.
First Time Buyers
According to recent reports, first-time-buyers who only have small deposits have been hit hardest by the result of the EU referendum, as the number of mortgages for buyers with 5 per cent deposits has shrunk.
The average price of a first-time property reached a 2016 high in June, of £161,912, but the number of mortgages available to those with the smallest deposits has fallen since June – this is the only type of mortgage to decrease in number.
A large number of UK mortgage brokers feel that this reflects lenders’ growing concerns that the housing market could falter in the wake of the EU referendum.
Fixed Rate (FR) Mortgages
FR mortgages have always offered the stability that most borrowers, whether first time buyers or remortgagers, want. They know exactly what’s going out for the fixed rate period, it allows them to budget, they can take the fixed rate to another property, should they move (Portability). There are very few drawbacks that I’m aware of with a FR mortgage.
I was asked many times, when recommending a fixed rate mortgage (having fully discussed the clients needs with them first) ‘what happens if rates fall?’ – my answer was always a very unsubtle “Tough, you can’t have it all ways, you’re buying stability and budgetability – you’ll know exactly what’s going out for the agreed number of years”. Or ‘the Capped, Tracker or Discount deal is cheaper, why should I consider a fixed rate’ – I would always point out that these deals, although generally a lower interest rate, were subject to Bank of England base rate moves – down or, not so welcome, up.
Brexit – getting back to it.
With so much speculation and uncertainty, it is likely that, at the very least, there will be huge uncertainty in the mortgage market for some time to come and, without using a crystal ball, it’s likely that mortgage lending rates may increase and some of the longer term, crtainly, fixed rate deals may also disappear. For first-time buyers, home-movers, remortgagers, Buy to Let(ers), who do want budgetary stability, fixed rate mortgages are the main type (Capped as well, to a certain extent) that will offer this.
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