Many homeowners and homebuyers are holding off on committing to a new fixed interest mortgage rate, hoping for rates to decrease in the near future, but major drops in rates are not likely to materialise according to national financial advice firm Continuum.
The latest data from the Financial Conduct Authority earlier this month showed the value of new mortgage commitments (lending agreed to be advanced in the coming quarter) had decreased by 6.6% from the previous quarter to £46bn. This figure is 21.2% lower than a year earlier, suggesting that many consumers could be holding off securing a mortgage due to uncertainty surrounding the future of rates.[1]
New clients turning to Continuum for their mortgage needs are often initially interested in shorter-term 2-year fixed rates or tracker rates, but often a 5-year fixed rates may ultimately be the more suitable option for them.
Anthony Harris, independent financial adviser at Continuum, said: “Having been advising on Mortgages since 1996, the prospect of getting a 5-year fixed rate of 5% or less was always the dream. Since the 2008 Financial Crisis, this actually was less of a dream and far more the norm, though there has always been plenty of argument to say the rates were/have been too low for too long.
“Looking forwards, we are now back to ‘normal rates’ and although there is scope for rates to eventually fall a little further, personally I do not see them coming down significantly. I believe there is a far greater economic incentive for Bank of England base rates to only fall as low as 2% in the long term, which would mean mortgage rates might come down to 3 – 3.5% long term. However, I do not see that goal being achieved in the next 12-18 months.
“Some of the current 5-year fixed rates at 4.5%-5% are not unreasonable. Assuming this meets client affordability, I am very happy to recommend, due to the stability that they offer. Especially when one also considers any lenders ‘arrangement fee’ which might need to be added, which in turn makes the 2-year rates look far more expensive in real terms.
“For me, a mortgage is still a long-term commitment and therefore clients should consider all options that might make that long-term commitment more affordable, no matter what happens in the ‘outside’ world.”
