Although swaps dipped slightly last week (see Marketwatch), they are still pricing in around three additional 0.25% base rate rises, taking us to over 6% already.
And with the latest figures from the Council of Mortgage Lenders revealing a record £30.6bn of lending in May despite three successive base rate rises, it’s clear the BoE must do something to slam on the brakes. King has repeatedly refused to rule out further rises if they are required to deal with the threat of runaway inflation.
This is bad news for borrowers. Clients coming to the end of two or three-year discounted deals in the latter part of this year are in for a shock. Already overstretched borrowers now face the painful prospect of their monthly payments moving from an interest rate of about 5% to one at 6% or more. Things could get sticky.
So the prospect of more lenders piling into the sub-prime arena – such as John Prust’s Abbey- Merrill Lynch joint venture – is a good thing. More competition will ensure that near-prime and subprime rates remain competitive.
As Ray Boulger, senior technical manager at John Charcol, reveals in Mortgage Strategy TV this week, one of the best rates at the moment is First National’s near-prime deal, albeit at 60% LTV, which trumps many prime products. There are still great deals out there.
That’s why brokers provide such a vital service in the mortgage market. When the market goes south, only brokers can provide the best value for frightened borrowers.