The Policy Exchange think tank hit the headlines over August with its prediction of an 8% Bank rate by 2012, necessary to control runaway inflation. If that proves correct, then borrowers on a £500,000 interest-only tracker mortgage would be facing a significant rise in monthly repayments of £3,125.
Most industry experts have poured cold water on the forecast, with the consensus that Bank rate is more likely to return to its long term ‘normal’ level of around 5% in the next few years, with little movement in the immediate future. However, that would still result in the monthly repayments on a £500,000 interest-only tracker mortgage rising by £1,875.
Around 4.5 million borrowers would face an immediate increase in their rates if Bank rate rises, so they do need to consider how they will cope when that happens.
Swap rates – which measure the cost to the banks of funding mortgages over two, three and five years – have fallen recently; five year swaps were at 2.06% at the close of business last week, down from 2.49% a year ago. And as the cost falls, an increasing number of borrowers are choosing the long term security of fixed-rate deals over cheaper variable rates.
About 50% of the new mortgages approved in August were fixed rates, the highest level so far this year, according to the Council of Mortgage Lenders.
Of course, with the help of specialist brokers like Largemortgageloans.com, clients can choose to hedge their bets with a combination of fixed and variable rates.
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on Tuesday, September 7th, 2010 at 4:06 pm and is filed under Commentary.
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News & Views:
The rate debate – 8% by 2012?
The Policy Exchange think tank hit the headlines over August with its prediction of an 8% Bank rate by 2012, necessary to control runaway inflation. If that proves correct, then borrowers on a £500,000 interest-only tracker mortgage would be facing a significant rise in monthly repayments of £3,125.
Most industry experts have poured cold water on the forecast, with the consensus that Bank rate is more likely to return to its long term ‘normal’ level of around 5% in the next few years, with little movement in the immediate future. However, that would still result in the monthly repayments on a £500,000 interest-only tracker mortgage rising by £1,875.
Around 4.5 million borrowers would face an immediate increase in their rates if Bank rate rises, so they do need to consider how they will cope when that happens.
Swap rates – which measure the cost to the banks of funding mortgages over two, three and five years – have fallen recently; five year swaps were at 2.06% at the close of business last week, down from 2.49% a year ago. And as the cost falls, an increasing number of borrowers are choosing the long term security of fixed-rate deals over cheaper variable rates.
About 50% of the new mortgages approved in August were fixed rates, the highest level so far this year, according to the Council of Mortgage Lenders.
Of course, with the help of specialist brokers like Largemortgageloans.com, clients can choose to hedge their bets with a combination of fixed and variable rates.
This entry was posted on Tuesday, September 7th, 2010 at 4:06 pm and is filed under Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.