For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
What's happening with mortgage rates?
After nearly a decade without a rise in Bank of England rates, savers have finally had some relief in the form of two increases over the past year. And while most savings accounts are still paying unforgivably negligible returns, there has been some positive movement, with a few banks and building societies jockeying for position as the market leader in both the easy access and fixed-term spaces.
The flip side of the coin is that, in theory, borrowers are meant to be worse off as a result of base rate increases. Those who usually feel the pinch most acutely are homeowners paying off a mortgage. Common convention is that lenders waste little time in driving up interest rates when monetary policy is tightened.
Who decides mortgage rates?
Mortgage and savings rates aren't only a product of the base rate though. Money market funding costs, and the level of competition for lenders to secure the deposits of savers will also have an influence. Different categories of mortgage are also affected differently when it comes to rate setting.
In the case of fixed-rate mortgages, the cost the lender incurs for acquiring fixed-term funding on money markets - better known as 'swap rates' - will dictate the interest rate. However, with tracker mortgages, the London Interbank Offered Rate (Libor) is the key determinant. This is because banks don't only rely on deposits to fund their lending - they also borrow from other banks as backing for disbursing the home loan.
Historically, Libor has tended to reflect the base rate, plus 0.1 per cent, while swap rates have been a measure of what markets predict bank rate will be over the coming 2-5 years. However, this high correlation between base rates and mortgage rates has diminished since the financial crisis.
Instead, confidence levels in money markets, and general access to funding have started to play a bigger role. As such, even as the Bank of England (BoE) cut rates by 5 per cent within the space of a year in 2008/09, mortgage rates took a while to respond in kind.
Which way is the tide going?
Of course, in recent years, mortgage rates have become extraordinarily low, as the combination of an uptick in the property market, and buoyant money markets has heightened the level of competition. Banks also have targets when it comes to mortgage disbursement, and, off the back of stricter affordability rules introduced in 2014, offering low mortgage rates is a popular means of achieving them.
In the case of tracker mortgages, many banks have passed on the full 0.5 per cent increase we've seen in base rates over the past year to borrowers. However, many haven't, and, across the market, the full impact of the November and August rate rises has not been felt.
More intriguingly, rates on many fixed-rate deals have actually declined. Data from Moneyfacts shows that the average rate for a two-year fixed mortgage with a 5 per cent deposit has dropped from 4.02pc in December 2017 to 3.33 per cent today. This is despite the corresponding swap rate having steadily climbed during this period.
Five-year mortgage rates, admittedly, have recently hit two-year highs of 2.95 per cent. But even this is just a paltry 0.17 per cent higher than November 2017, when the BoE announced the first of its two rate rises.
According to current best-buy tables, those with a 10 per cent deposit (or equity) can still fix their rate for two years at 1.79 per cent. Alternatively, those looking to fix for five years can do so at just 2.25 per cent. For those with 40 per cent equity, you can lock in a fix for two years at just 1.39 per cent, while a five-year fix has a rate of as little as 1.79 per cent.
What happens next?
Brexit uncertainty makes it difficult to predict the path of BoE rates moving forward. Mark Carney himself has implied that interest rates could go up or down in the event of a disorderly departure from the EU. Yet given that they remain within touching distance of 350-year lows, logic suggests that there is only one way to go for base rates: up. And in the event of a smooth Brexit, and the expected bounce in the economy subsequent to that, it is highly likely that there would be upward pressure on rates.
As such, it does create temptation to opt for longer-term fixes, and there has been a surge of applications for five-year deals recently. Yorkshire Building Society, for example, has reported a 13 per cent increase in five-year applications since August. Furthermore, a recent study by the Mortgage Advice Bureau found that more than a third of homeowners would consider a 10-year fix. Indeed, 10-year deals have had quite the resurgence over the past 12 months, with rates as low as 2.49 per cent available (max 60 per cent LTV).
It would all seem to put tracker mortgages, and even two-year fixes, in the shade. A negligible difference in rates, and expensive arrangement fees make longer-term deals more desirable. Nevertheless, there are a few important considerations to be factored in. Firstly, fixed-rate deals will usually have early repayment charges attached to them. You may also not have the flexibility to move house under such arrangements either. And also, the very fact that the relationship between Bank rate and mortgage rates appears looser than it once was brings uncertainties of its own, and the fear of missing out on even better deals in the future.
The issue of whether to fix, or for how long to fix, is not a new one for borrowers. Sticking or twisting is a very personal choice, and depends on individual circumstances. But for those looking to apply for a mortgage, or remortgage, there is one decisive question which needs answering: how much lower can mortgage rates actually go?
In normal times, the categoric answer would surely be, 'not very much'. But as we well know, these are anything but normal times.
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