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Is it time to fix my mortgage rate, and are we near the bottom for the housing market

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  • Is it time to fix my mortgage rate, and are we near the bottom for the housing market

    I will answer the housing market question first: If you had asked me three months ago I would have said absolutely no chance. Here I am only weeks ago saying that the economics didn’t support a bounce but there are a number of factors that look very promising.
    The last housing market correction in 1989 took three years of falling prices before there was a turn. Indeed someone buying in 1989 would have been in negative equity for nearly seven years.
    The Bank of England is mindful of that and not wishing to make the same mistake again, they have been very aggressive with interest rate policy and quantitative easing. It appears to be working.
    Since 2003 I have been cautious on all property, but since the Bank of England bottled it in 2005, we have advised against property purchase on the basic grounds that it didn’t offer a sustainable return over a risk free asset – cash. This was a clear sign to get out.
    Whilst logic says the housing market needs to fall further, often logic has no brakes for sentiment.
    With interest rates at such a low level, government incentives and grants to assist first time buyers, and unemployment not hitting anywhere near the expectations, buyers are returning in abundance.
    Interestingly our enquiries for mortgages are higher now than the peak of the mortgage market. Each of the last three months have been 100% greater than the average, and June looks like it will be over 200% better.
    This is a clear support level for house prices through extra demand and it’s very possible the 1989 issue has been averted. Good news at last.
    Should you fix your mortgage rate? That’s an interesting one. Last week most lenders withdrew their fixed rate offerings and replaced them with higher rates. This is in anticipation that rates will begin to rise, which is peculiar, given that we have benign inflation. In fact the retail price index is still at -1.1%.
    Either way the anticipation is that rates will rise and fixed rate mortgages are now c20% more expensive than they were last week. Should you fix now? It very much depends on what your current mortgage deal is. For example, some lenders set their own standard variable rate and that is typically around 4.8% today whilst others track the base rate and that’s down at 0.5%. For some it would be quite a leap to hop from 0.5% to today’s typical fixed rates. The typical fixed rates are: two year 3.98%, three year 4.99% and five year is 5.64%.
    And so it’s a much more difficult decision for you if you are on a lower tracking rate as above but a sure fire winner if you are on a standard variable of around 4.8%.
    Much also depends on the impact of quantitative easing. If the extra money in the system bites, inflation is a real risk and interest rate rises will be the quickest way to slow down the economy.
    With that in mind, a three year deal at 4.99% looks like a bargain with the safety of knowing what you will be paying for the next 36 months.
    The better rates are still being offered to those who borrowed less in relation to the value of the property (i.e. loan to value). For example if you are borrowing less than 75% loan to value you could have a two year fixed rate at 3.09% whereas if you are borrowing at 90% loan to value, the best two year fixed rate is 5.99% - almost double!
    Finally be careful when you are looking at mortgage rates and ensure you look at all the underlying fees as they can soon mount up.

    Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
    Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
    The above represents the personal opinions of Peter McGahan.
    All information is based on our understanding of current tax practices, which are subject to change.
    The value of shares and investments can go down as well as up.
    Last edited by Ronny; 04-08-2009, 09:16 AM. Reason: need to reference source
    Worldwide Financial Planning is a specialist independent provider of Large mortgages.

  • #2
    Re: Is it time to fix my mortgage rate, and are we near the bottom for the housing ma

    I dont think we're at the botom of the market - i believ the double dip will come next year. I do think its a good time to fix a mortgage - for over three years if possible as rates cant get lower - they can only (and will only) go up from here!

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    • #3
      Re: Is it time to fix my mortgage rate, and are we near the bottom for the housing ma

      I have to agree that we could be in for a double dip so for most people it may be a good time to opt for a competitive fixed rate
      Best wishes

      Sean Hughes

      Independent Financial Adviser

      Comment


      • #4
        Re: Is it time to fix my mortgage rate, and are we near the bottom for the housing ma

        We think this is about the bottom for fixed rates , we have a few below 3% for 2 years and below 4% for 5 years. swap rates have increased this year already which is an indicator:

        1 Year: 0.99% (0.94%)
        2 Year: 1.64% (1.56%)
        3 Year: 2.09% (2.01%)
        5 Year: 2.78% (2.69%)
        7 Year: 3.26% (3.17%)
        10 Year: 3.71% (3.62%)
        Large mortgages and High Net Worth Mortgages from enness private clients

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        • #5
          Re: Is it time to fix my mortgage rate, and are we near the bottom for the housing ma

          The latest fixed rates do look attractive from a rate point of view, but you need to offset the hefty fees that some of them incur. It's impossible to preempt the market, but it's interesting to see what has happened to rates over the last year. With house prices still falling in some areas, and rent generally costing more than mortgage repayments, there probably hasn't been a better time to buy for a long time, especially when you have a good LTV to qualify for the lowest rates. The other thing to consider is that when the dip is over and the banks and building societies start lending, the market will start to switch from too many properties and too few buyers, causing prices to remain low, to the opposite. Looking at the future, even without a crystal ball, it is hard to imagine a reason why rates would drop any further, and knowing that house prices will start to climb, quite probably withing the next couple of years, it's hard to see a situation where you could stand to lose much if taking a longer term fixed rate mortgage, and easier to imagine that your could make substantial savings.
          https://www.dealdirectfinancial.co.u...rate-mortgages

          Comment


          • #6
            Re: Is it time to fix my mortgage rate, and are we near the bottom for the housing ma

            A number of mortgage lenders have reduced their fixed rate mortgages last week, including; Nationwide, Northern Rock to name a few. The CBI still forecast an interest rate rise late this year, which many think will materialise in August at 0.25%. So if you're going to fix your mortgage rate be sure to fix before August.

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            • #7
              Re: Is it time to fix my mortgage rate, and are we near the bottom for the housing ma

              I think this tread shows that predicting the bottom of the mortgage market is somewhat futile as things change very quickly. Our general advice at the moment is if you can get a 2 year fixed under 3% or a five year under 4% take it and enjoy not having to worry about it for a while!
              Large mortgages and High Net Worth Mortgages from enness private clients

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              • #8
                Re: Is it time to fix my mortgage rate, and are we near the bottom for the housing ma

                I could not agree more with UK Mortgage Broker and Enness Private Clients.

                Now is the time to fix, the banks are trying to push trackers at the moment, but do not fall into there trap!

                My suggestion to clients is where you budget would allow, fixed for five years, as RBS predict over the next 3 years a 3.75% increase in the BoE base rate to 4.25%. This would mean for a typical £150,000 mortgage over 25 years an increase of £300 per month.

                If anyone wants help with this feel free to message me.

                Regards,

                Chris

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