Mortgage customers are confused about what type of product to choose.
The summer has seen a number of economic reports and news stories that seem to contradict each other on a daily or weekly basis. If you are contemplating a house move, remortgage or first time buy then you will be watching all of these developments with concern, hope or resignation – depending upon your own situation and point of view. Fixed rates, trackers and variable rates may all seem to be attractive options depending upon the recent news you have read in the newspapers, heard on the radio or seen on the TV.
A report from chief economist at the Policy Exchange, Andrew Lilco this week suggests that UK mortgage interest rates could hit 8% in the next two years. His opinion is based upon research of the mortgage and housing market during the last twenty years and examines how inflation, a recession and central Government policies have all affected the economy and the housing market.
The Bank of England Base Rate currently remains steady at 0.5% but Lilco forecasts this will rise to at least 2% by the end of 2011 and will hit 8% at some point after that. He claims that in order to keep inflation down to 10% interest rates will need to rise and points out that as recently as 1998 rates were 7.5% – so his theory is that if you do a re-evaluation of the current economic situation based upon historical data is not unreasonable to contemplate an 8% interest rate.
The report points out that if households do not take the window of opportunity that may be available in the next two years – whilst rates remain low – to reduce their debt then there could be a mass defaulting on mortgages, loans and credit cards as interest rates rise and homeowners find themselves facing severe financial difficulties with the likelihood that they will be unable to meet their monthly repayments.
The historical review certainly seems to offer a bleaker picture than is being promoted by the politicians and the full report and analysis has plenty of figures and forecasts to back up the claims. However the overall conclusions have been disputed by some economists and commentators.
In his blog on the Mortgage Strategy website Ray Boulger has dismissed the predictions as being a desperate ploy for publicity during the summer silly season when there are few senior analysts and politicians to respond to Lilco’s comments. Boulger also claims that the report takes no account of international economic conditions and is viewing the British economy in a vacuum – unaffected by worldwide events.
The best course of action for anyone contemplating some kind of house move or property investment must be to take as much advice as you can get and weigh this up alongside your own opinion and judgements.
Current good deals if you agree with the doomsayers are five or ten year fixed rate mortgage from the Leeds Building society with interest rates from 3.94% covering 60% of the property value.
On the other hand if you have a positive outlook on the economy and expect stable interest rates to remain in place then variable trackers are available from the Yorkshire Building Society for two years at 2.25%.
Check out the latest mortgage tables but also keep in mind that lenders have introduced strict criteria and lowered their Loan to Value approvals, so those headline rates that you see flash up on your computer screen may not actually apply to your particular circumstances. These promotions are often simply a way to pull customers into contacting one mortgage lender rather than encouraging a comprehensive whole of market comparison.
Ray Boulger thinks it highly unlikely that interest rates will rise to 8% in the near future but most analysts do agree that the current low rates cannot stay in place for very much longer. More moderate increases are far more likely and the decision about a suitable mortgage product should not concentrate upon either the worst or best case scenario. The next few months may result in a clearer picture for the general public as the economists, lenders and financial advisors assess the impact of new Government policies and settle down into taking a more balanced view of the economic outlook.