After much debate last year that the Bank of England (BoE) base rate would rise in early 2016, the experts are now predicting that the low 0.5% interest rate will remain until 2017. So, what are the consequences for both borrower and for saver if this is the case? Also, with interest rates remaining low, why are we seeing some fairly significant hikes in Fixed Mortgage rates in recent months?
The impact of a low base rate for savers
Unfortunately, a low base rate means savers, especially those without a mortgage, will continue to see low or moderate returns on their investments.
It is going to be important therefore, in the coming 12 months, to diversify investments as much as possible, and ensure that any new financial products coming onto the market are considered for better rates of interest. This applies even to ISA’s and savings accounts where perhaps you keep your “rainy day” money.
Investments, as always, need to be reviewed as a long-term strategy, which, with careful investment planning, are likely to come back into favour, once the market turns around.
The impact of a low base rate for borrowers
The impact of low base rate for borrowers is generally favourable.
The majority of the reason why mortgages have been historically low, since the start of the financial crisis in 2008, is due to a low base rate, which has an impact on the rate of which lenders can loan each other money – this is called the “swap rate”.
In recent months, swap rates have been gradually increasing, however, it seems, independently of the BoE base rate, and linked swap rates.
It appears there is another reason for recent mortgage rate rises. Lenders fear a tightening in lending regulations, which was highlighted in the BoE Stability Report in early December 2015.
The suggestion is that rising house prices have, at least in part, been caused by low interest rates, and an abundance of lending and overall, it is thought this combination has caused an imbalance in the economy.
Lenders are now fearful that if they continue to dish out mortgages at 2015-and-before levels, that the mortgage market will once again be under fire and faced with regulation restrictions.
Rising mortgage rates, without a rise in the base rate
All-in-all, if you haven’t remortgaged onto a Fixed Rate, there is the potential for rates to rise in 2016, even without a rise in the base rate.
Anyone considering a new mortgage would be wise to seek advice sooner rather than later so trends can be assessed and the transaction timed effectively to ensure you don’t miss out on the opportunities that are still available, but that are reducing in volume.
Dental & Medical Financial Services keep a close eye on the best rates available for new and existing mortgage arrangements. Speak with Chris to get a bespoke quote for your circumstances.
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