The Brexit vote looks set to push already cheap fixed-rate mortgages to new lows, with a raft of lenders likely to cut borrowing costs for new customers in the coming days, according to a leading home loans expert.
Ray Boulger, of mortgage broker John Charcol, said a fall in gilt yields would reduce the cost for lenders of longer-term funding “and hence open the door for even cheaper fixed-rate mortgages”.
He predicted more lenders would join HSBC in bringing out five-year fixed-rate mortgages priced at just under 2% – perhaps at around 1.95% – and advised those thinking about taking out a fixed deal to “hold off for a week or so and see where the market settles down”. However, he acknowledged that that might be easier for those looking to remortgage than people trying to buy a house right now.
In the run-up to the EU vote, five- and 10-year fixed-rate mortgages have been at some of their lowest ever levels. HSBC is offering a five-year fix at 1.99% – matching a rate it offered last year – while Leeds building society currently has the cheapest 10-year fixed-rate deal, priced at 2.89%. And on Tuesday HSBC launched Britain’s first fixed-rate mortgage with a rate below 1%: a two-year fix at 0.99%.
Longer-term fixed rates in particular have been coming down in recent weeks because government bonds have been seeing a drop in yields – the interest rate they pay out to investors – as the City searches for havens for its cash. In the hours following the vote announcement, gilt yields struck new lows.
Boulger said he believed the Bank of England base rate and other short-term interest rates were unlikely to change much, simply because they were already close to zero, but the fall in gilt yields would reduce the cost for lenders of longer-term funding, thereby making it possible for them to offer even cheaper fixed-rate mortgages.
“Most mortgage lenders didn’t pass on much of the pre-referendum fall in rates, so we can now expect to see more price competition, especially in the longer-term fixed rates,” he added. Once the financial markets settled down and lenders felt more confident, “I think we will see a raft of lenders coming in with cheaper fixed rates”. This could happen as early as next week, he added.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said he believed that in the short term “not a great deal will change”.
He added: “Mortgage availability is good, banks still want to lend and interest rates are at an all-time low. Swaps are falling on the back of the outcome, and it’s likely to have put back any interest rate rise further away still. The remortgage market is likely to continue to be aggressive, with some competitive deals to attract borrowers.”
Ed Stansfield and Hansen Lu, property economists at Capital Economics, said they doubted that chancellor George Osborne’s “gloomy” campaign predictions of a sharp rise in mortgage interest rates would be borne out. “True, it is probable that the prolonged uncertainty will increase further the cost of wholesale funding for mortgage lenders. Yet such effects may well be largely cancelled out by the fact that we expect monetary policy to stay looser for longer.”
