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.