December 10th, 2013
At a time when property prices are on the increase and mortgage rates are predicted to follow suit, is now the time to look at longer term fixed rates? Several ‘contractor-friendly’ lenders have reacted to demand and started to re-price their longer-term fixed products upwards, providing cause for concern for contractors looking to take out a new mortgage in the short term.
Mark Carney, governor of the Bank of England, expressed concern this week about a potential housing market bubble, saying that the Bank of England will look to tighten lending requirements if necessary – with an increase in the base rate being seen as an obvious preventative measure.
This last statement, combined with similar noises emerging from financial industry commentators in recent weeks, has increased demand for longer term fixed rates so borrowers can protect themselves from high mortgage payments in the near future.
Contradictory news coming out of the Council of Mortgage Lenders recently however, has suggested that fears of an imminent base rate increase could yet prove unfounded.
The CML say that an unbridled property boom is at best unlikely, and predicts gross mortgage lending will hit £206bn in 2014, still considerably less than the 2007 high of £363bn.
With differing opinions making headlines, are fears unfounded or should contractors be wary of increasing housing costs when looking at funding options?
“I think the reality is somewhere in the middle” added Taj Kang, Operations Director at Contractor Mortgages Made Easy.
“Whilst an increase in the base rate is an option for the Bank of England, it is certainly not the only option.”
“In fact, there may be a reluctance to increase just yet as even a rise of 0.25% will mean that many families edge perilously close to the bread-line.”
The recent announcement of the withdrawal of Funding for Lending demonstrates that the Bank of England is acutely aware of the potential impact on many thousands of an increase in base rate; and is looking at other measures to guard against a price boom.
“The withdrawal of Funding for Lending, though perhaps surprising, is arguably the correct move. The housing market is on the up and it would be fair to suggest that those funds could be better utilised elsewhere. It has done its job of stimulating the market and encouraging lending; now could be the time for the baton to be passed to Help to Buy and similar incentives to help those contractors who otherwise would be unable to get on the property ladder.”
Whilst the property market is by no means all doom and gloom, Taj suggests that contractors should still remain conscious of future value.
“With the base rate unlikely to rise in the immediate future, it looks very much as if mortgage rates will. With the market remaining buoyant and lenders looking at 95% mortgages again for example; the downside of this is that mortgage rates are steadily increasing.”
“In recent times the value has very much been with shorter-term fixed rates, however now is certainly a time to take stock and look at the longer-term options in the market, which offer a good balance between security and value. It is worth noting that 5 year fixed rates have been increasing steadily for the past few months with ‘contractor-friendly’ lenders, and supply and demand issues for funding mean that this is likely to continue. ”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
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