Interest rates will rise ‘sooner than markets currently expect’, according to Bank of England governor Mark Carney in his Mansion House speech. Given that interest rates have not shifted from 0.5 per cent in more than five years, his pronouncement came as a shock, with money market rates rising significantly. However, not long after Carney made his remarks, the Office for National Statistics announced that inflation fell from 1.8 per cent to 1.5 per cent in June. This is well below the Bank of England’s 2 per cent target, taking the pressure off the Bank to raise interest rates.
But while an interest rate rise may not be imminent, it will happen. There is no need for borrowers to panic, particularly as long-term fixed-rate mortgages are historically still cheap. Yet it is worth looking at your options. If you are on your lender’s standard variable rate, or you will need to remortgage or take out a new deal in the next six months, it is not too soon to start looking. Seek independent advice and consider whether a fixed rate might be the best option for you.
Many of our clients are opting for five-year fixes because they are so competitively priced. Only a few years ago we didn’t expect five-year fixed rates below 4 per cent but it is possible to fix for that length of time from 3.09 per cent, depending on your deposit or level of equity in your home.
Those considering a new mortgage should be aware that the mortgage market review (MMR) means the application process has changed. Lenders are assessing borrowers’ affordability in greater detail; whereas before they would check three months of bank statements, now they are checking six to 12 months of statements. They are also going into great detail when checking the source of deposits.
We advise clients to prepare before making their application, cutting back on unnecessary spending at least six months beforehand, and paying off any debt. Contact us for more information.