Mortgage Best Rate

When will the best mortgage rates be available? The short answer is: ‘No-one knows’, but that’s not what you’re looking for. The long answer is more complicated, and the subject of much discussion – but here are a few of the important factors:

1) The falling base rate
At 0.5% (as of March 5th), the Bank of England’s base rate is about as low as it can go.

“The bank rate doesn’t have to go to zero, because we’re getting to the point where it doesn’t make a great deal of difference where it is.”
Mervyn King, Governor of the Bank of England

In theory, it could drop another 0.5% to zero, but it seems Mr King doesn’t necessarily expect it to. In other words, mortgage lenders aren’t going to face many more calls to ‘pass on’ base rate cuts to their customers.

And of course, the phrase ‘pass on’ does miss the point, as the Bank of England isn’t the only source of funding for mortgage providers, so there’s no reason to expect them to match cuts to the base rate point for point. There’s even reason to believe that interest rates on fixed-rate mortgages have fallen as far as they’re going to – and have started rising again.

2) The unexpected
Back in 1988-89, the base rate shot from 7.38% to 14.88%, a jump of 7.5%, in just 16 months. If this happened again, a 25-year variable-rate £150,000 mortgage – currently costing around £900 a month at 5% – could jump to over £1,600 if the base rate reached 12.5%.

There’s no way of knowing if the same thing could happen again, but few people who were paying a variable-rate mortgage 20 years are likely to have forgotten what it felt like at the time!

A lot of economists seem to expect the base rate to stay low for the next year or so – but a lot of mortgagors are sure to make sure they find a good fixed rate before the year is over.

3) The availability of credit
If you’re a would-be first-time buyer saving up for a deposit, you’ll be watching house prices closely. The good news is, they’re coming down; the bad news is, they’re coming down (partly) because so many people (perhaps including you) can’t get a mortgage. As long as mortgage availability remains low, your best chance of getting a mortgage is to put down a sizeable deposit.

If there’s no way you can do that, you’ll have to move quickly a few months / years from now.

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