View more on these topics

Short-term rate shocks should not deter buyers

Would-be buyers should not be put off by the short-term prospect of spiralling interest rates and instead adopt a long-term strategy when deciding what they can afford, according to brokerage Private Finance.

Bank of England base rate has been at 0.5% for eleven consecutive months, which has prompted some commentators to voice concerns that interest rates are set to rise rapidly.

Interest rate rises have also been touted as a tool to stem a rise in inflation as last month’s Consumer Prices Index jumped from 1.9% to 2.9%.

Yet Private Finance says that longer-term swap rates of between five and 10 years point to a less volatile environment.

Arbuthnot Latham Private Bankers puts the average five-to-ten year swap rates, used to guide the cost of mortgage funding, at between 4.5% and 5% over the last ten years.

Ashley King, head of Treasury at Arbuthnot Latham, says that this ’neutral rate’ may not have been affected by the record-low base rate.

He says: “Most lenders’ five and 10-year mortgage rates are presently building in a margin of around 1% to 1.5% over cost of funds.

“If long-term rates begin to increase, these fixed mortgage interest rates could rise to well above 6% if current margins are maintained.

“These margins will only decrease if and when liquidity – and therefore competition – return to the market.”

Private Finance has therefore urged borrowers to look beyond the threat of short-term rate hikes and base affordability on longer-term rates.

Simon Checkley, managing director of Private Finance, says: “If a mortgage based on these longer-term rates can be afforded then we see no reason why a buyer should be put off a property purchase just because there is talk of increases in inflation and interest rates. 

“Against the background of this long-term approach borrowers should look to benefit in the short-term from some of the attractive tracker rates currently available at rates as low as 2.5%.

“Just don’t use that rate as a guide to calculating what you can afford in the long-term.”

 

 

Recommended

Santander considering UK flotation

Santander is reportedly considering a flotation of its operations in the UK to raise money to fund the Spanish bank’s expansion plans.

2

Mortgage Times still not in administration

The Mortgage Times Group has still not been placed in administration almost a month after it was claimed that an application had been made.Mortgage Times staff were originally told by management that the network had been placed in administration on December 21. HM Revenue & Customs also filed a winding-up petition back in November in […]

FTBs rush to beat Stamp Duty

The number of first-time buyer loans in December rose to its highest level for two years as consumers scrambled to buy ahead of the end of the Stamp Duty holiday.

A guide to auction finance in 2017

By Matt Tooth, chief commercial officer, LendInvest Over the coming weeks, property auction houses across the country will begin sending out their catalogues to prospective buyers in time for the first auction series of 2017. It’s an exciting time for investors, well aware of the opportunities the properties on the lot sheets offer them and […]

Newsletter

News and expert analysis straight to your inbox

Sign up