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How a decade of interest rate cuts flipped the mortgage market – Fullbrook

by: Tony Fullbrook, head of mortgage purchases at Barclays Mortgages
  • 31/07/2017
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How a decade of interest rate cuts flipped the mortgage market – Fullbrook
It is difficult to believe but the ten-year anniversary of the last UK interest rate rise has just passed. Barclays’ Tony Fullbrook reviews how the mortgage market has evolved over the last decade.

Way back on the 5 July 2007, the Bank of England’s Monetary Policy Committee voted to increase rates to what now seems like a whopping 5.75%.

Since then an estimated eight million Britons haven’t seen an interest rate rise in their adult life. When it comes to savings, a report from Hargreaves Lansdown showed that £1,000 stashed in a typical instant access account in July 2007 would now be worth £1,107.

However, after factoring inflation, which has risen 26 % over the period, the real value today would be £878.


Benefits for borrowers

While cash savers have undoubtedly felt the pinch from lower interest rates, there have been greater benefits for borrowers.

The typical mortgage rate is reported to have fallen from 5.8% in July 2007 to average levels of 2.6%.

Borrowing costs have also fallen for UK companies – the typical borrowing cost for a large company with a good credit rating fell from 6.4% in July 2007 to 2.8%.

The mortgage world has obviously had to dig deep over the past decade to repair a substantial amount of damage.

Thankfully – in part – due to this low interest rate environment, it has evolved into a far more robust and secure lending platform, across all market sectors.


Competitive landscape

Ten years on, more lending options have emerged and we are once again operating in a highly competitive landscape.

The latest UK Mortgage Trends report from Moneyfacts backs this up by suggesting that average mortgage rates have fallen to the lowest point on the firm’s records.

Both average two-year fixed and variable rates are suggested to have hit fresh lows once again, now standing at 2.26% and 1.82% respectively.

These figures mark a notable reduction over the last year.


Longer term products

There will always be greater movement among the shorter-term deals because of the sheer numbers involved, but there have also been increased activity levels within the medium to longer term product area.

Five-year deals remain extremely popular, especially when it comes to remortgages.

Data from LMS showed that longer fixes remained popular in April, with a third of borrowers (34%) choosing a fixed five-year deal, up from one in ten (8%) homeowners who previously had this product type before remortgaging.

Anecdotally this makes sense as internal, and external, conversations suggest many first-time buyers are still plumping for two-year terms in the hope that their property will sufficiently increase in value over this period.


Remortgage platform

In turn, this equity boost will then provide homeowners with a good platform to remortgage onto a five-year fixed rate deal at a lower LTV rate.

This is a solid plan for many, but in the midst of some contrasting house price predictions it remains to be seen if it works for all.

With expectations rising over a potential hike in BoE base rate, what is clear is the rising value of good, professional holistic advice.

This remains a key component in securing short, medium or longer-term property related futures for a variety of aspiring and existing homeowners all over the UK.

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