Last August the Bank of England launched a scheme to make money more available to homeowners. Basically the bank has lent money to financial institutions to lend out at below market rates. Since this initiative lending has increased, but it is perhaps a little early to conclude that this injection of money has proven successful.
Although 80 billion pounds has been allocated to lenders over 4 years, it is debatable whether availability has increased for previously underserviced markets. For example, lenders have typically not returned to 95% mortgages for first time buyers, and they still underwrite mortgages in such a way that I get the impression that they are trying very hard to find reasons not to lend rather than reasons to lend.
However, with this stimulus in place it does appear to have had a positive impact on the number of mortgages available and the type of mortgages being taken out. This is characterised by the number of fixed rate deals available having increased by 20%. Also it is interesting that 5 year fixed rate deals are becoming more popular when compared to the traditionally popular 2 year fix. Generally the 5 year fixed rates have been less popular mainly because the rate was much higher than the 2 year alternative, but now this is changing. In August the average 5 year rate was 4.73% with 380 products available, but now the rate has dropped on average by 0.58% to 4.15% with increase of products to 647. Some of the lowest 5 year fixed rates for those with 40% equity in their property have now fallen as low as 2.89% as apposed to a 2 year fixed rate costing 2.39%, a difference of 0.5%.
These figures do concentrate people’s minds, the difference between long-term security and short term is only marginal. Also we now have had over 5 years since the beginning of the financial crisis and at some time interest rates will rise. The question is whether this will be sooner or later? For those with a small mortgage or with enough income to cover several interest rate hikes then this question may be more easily answered with a grin and bear it approach. But for those who would be in trouble if interest rates rose significantly, it is worth considering opting for security for very little extra above the 2 year deal. Finally many people are paying standard rate mortgages well in excess of the current suite of fixed rate products so it could be worthwhile reviewing your mortgage to obtain a better deal through a remortgage whilst these rates last.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
18th February 2013
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