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First-time buyers risk missing out on low rates by second guessing market – analysis

  • 20/09/2019
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First-time buyers risk missing out on low rates by second guessing market – analysis
The mortgage industry is probably at the most competitive it has been in many years, with staggeringly low interest rates on offer across two-year fixed, and the increasingly popular five-year equivalent.


But conversely, this is being challenged by what the naysayers would insist is a flatlining housing market in the shadow of Britain’s increasingly fraught discussions with the EU over a deal or no deal. 

Last week, HSBC reduced rates on a number of fixed rate products, including its three-year fixed rate deal, which is now at 1.49 per cent fixed until 31 January 2023, available on a 75 per cent loan-to-value (LTV). This is one of the lowest rates offered on a 75 per cent LTV and with a £999 product fee.

However, even a rate that will not change for almost two-and-a-half years may be a hard sell for first-time buyers watching the property market with a different type of interest. 

Another provider that announced new deals last week was TSB, which has introduced two new fixed rate deals, including a five-year deal of 1.84 per cent fixed until 30 November 2024 on an 85 per cent LTV.


EU showdown

Is it simply a case that jittery potential property purchasers think they will be offered even lower mortgage interest rates if – potentially – prime minister Johnson makes good on his threat of leaving the EU on 31 October?

Or, is it much more deeply rooted in the transient nature of “generation rent,” that they are reticent to follow their parents into chaining themselves to the mortgage millstone?  

Peter Izard, business development manager at Investec Private Bank, says: “Competition is rife in the mortgage industry, which is – in part – having an effect on rates and ensuring that competition is making rates decrease, and this is making fixed rates more competitive. 

“How long this will last, has an element of Brexit attached to it, like everything, but there is a supply and demand that is very much in the supply favour at the moment.

“There are a huge amount of lenders competing for a smaller pool of clients and when you have supply and demand in that favour, it favours the end client.

He continues: “How long this will remain is the million-dollar question. What’s absolutely imperative is clients must do what’s right for them, at the time that suits them, rather than trying to second guess the market.

“However, you do get to a point where you think to yourself, I just don’t know quite how much further these rates can fall, so – from a timing perspective – it could be considered that now is a good time.” 


New blood

Are rates as shallow as they are likely to get enough to attract new blood into the market, or is the mortgage industry dealing with a new and warier demographic?

And, more importantly, are first-time buyers in danger of missing a once-in-a-lifetime opportunity to pay less for their mortgage rates than their parents did, even if, and potentially because, they are attached to the more flexible two- and five-year fixed? 

John Azopardi, mortgage and protection adviser at New Leaf, thinks that first-time buyers may be gambling on a magic bullet that would have mortgage deals remain at low interest rates, while house prices fall – something that is far from certain on either count.  

“The current low rates on offer play through into improved mortgage affordability. Some who are new to the market may be holding off in the hope that house prices will fall, but there is no certainty that such a scenario will play out. 

“With lower interest rates working through into lower monthly payments, first-time purchasers should be encouraged to be judicious and set aside surplus income as circumstances allow.

“Using overpayment options will go some way to mitigate the effect of a slide in prices and the spectre of negative equity,” he comments. 

With the Bank of England (BoE) base rate still hovering at 0.75 per cent, it could be simply that we have entered a period of blasé thinking towards all interest rates.


Market sea change 

Sebastian Murphy, head of mortgage finance at JLM Mortgage Services, adds: “Pretty much historically, we have been championing much longer fixed rates, between three- and five-year rates – perhaps not the seven and ten years, as they had some pretty heavy penalties if you come out of those.

“If you look at the mortgage clubs and the bigger lenders over the past three to four months, for the first time ever, five-year rate product sales have exceeded two-year rates, and that’s a proper sea change in mortgage lending, and the type of lending we’re used to seeing in the UK.

He continues: “Brokers are making it very apparent now that rates are super low.

“Even though you might see a base rate decrease with what’s going on with Brexit at the moment, the longer-term view is that rates aren’t going to stay this low forever.”

It would take a serious economic shift to return to the dark days of the eighties when under a sitting Conservative government with a right-wing prime minister rates were hiked up to around 15 per cent, with some mortgages even topping 18 per cent.

The issue that current lenders face is a generation that has grown up on low interest rates and is taking little notice of possibly the lowest mortgage rates that will be available in their lifetimes.


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