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Low mortgage rates are temporary blip

ALAN CLEARY, MANAGING DIRECTOR, EXACT
ALAN CLEARY, MANAGING DIRECTOR, EXACT

What would the average person – or indeed a mortgage professional – say the average Bank of England base rate has been over the past 35 years?

My guess would be around 5%, and I bet many borrowers may think it was even lower than that.

In fact, the average base rate between 1975 and 2010 was 8.3%. Interestingly, in that period 3,244 business days had a base rate in excess of 10%, or in other words 36% of the period or around 12.5 years.

My first mortgage in 1989, when I was just 19 years old, was a competitive 12.75% fixed for five years with Halifax.

We have all got comfortable, if not downright joyous, about how low our mortgage payments are. But the reality is that this is just a temporary blip.

We should be trying to establish what our plans would be given the inevitable increase in rates and whether a fixed or capped rate might be worth considering, even though they may look expensive at the moment.

Swaps are low right now but as soon as there is a sniff of evidence about rate rises they will shoot up. As this is the rate which fixes are usually pegged at, the deals currently available might actually be bargains.

Five-year swaps are at 2.7%, so any deals that are sub-5% seem a decent bet.

The tricky part is how you advise borrowers in this period of unprecedented interest rates. I will leave that up to the experts.

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  • JS 7th April 2010 at 11:40 am

    I think it would take a very long time for mortgage rates to get that high again. Let’s not forget that mortgage rates are ultimately dictated by what people can afford.

    Back in the 70s and 80s, mortgages were lent out as 2-3 times the borrower’s salary, but rates were higher. Now, mortgages are more commonly 3-5 times the borrower’s salary, but rates are lower. So the two periods are more or less equal in terms of burden on the borrower.

    If rates were to rise to 8% or more, we’d see scores of people defaulting on huge debts, which lenders obviously don’t want. As such,I doubt we’re going to see rates that high for a long time.