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Analysts have announced that there may never be a better time to take out a mortgage, with figures showing that rates have nearly halved over the past 12 months.

With lenders amidst an ongoing mortgage price war as they try and persuade people to choose their mortgage deals over their competitors’, John French from Mortgage Advice Bureau at Farrell Heyworth Estate Agents looks at how potential borrowers could use the next six months to their advantage when looking at buying a property.

Why are prices so low?

Swap rates can directly influence the interest rate that you pay on your mortgage and, last year, the general consensus was that the Bank of England was going to increase the Bank Rate from its record low of 0.5 per cent, which caused swap rates to increase in preparation.

However, this increase never happened which has caused swap rates to tumble back down, thus providing lower interest rates for mortgage deals. 

And with them finally beginning to catch-up on the slowed activity from last year and house prices continue to increase, there is an air of confidence around lenders, hence the raft of cuts.

Banks and building societies are also finding that they have surplus money due to the Funding for Lending scheme.

Launched in 2012, the scheme allows banks and building societies to borrow cheaply from the Bank of England on the condition that they then use some of the money to offer mortgages to home-buyers.
With the current low level of inflation and the Bank of England concerned that lifting the Bank Rate would destabilize Britain’s ongoing recovery, it is looking increasingly more likely that interest rates will not increase until sometime in 2016 - leaving lenders to fight amongst themselves in a thriving market full of previously struggling homebuyers hoping to take advantage of the low rates.

Launched in 2012, the scheme originally allowed banks and building societies to borrow cheaply from the Bank of England on the condition that they then use some of the money to offer mortgages to home-buyers, though it is now focused on funding the lending to small and medium-sized enterprises (SMEs).

How will this help homebuyers?

The war will continue and fixed-rate deals may well stay at their record low rates for the coming months, alongside typical variable rates that have halved over the past twelve months, and five-year fixes that could go below two per cent.

The rate war is showing no sign of dwindling any time soon and with various new lenders entering the market, competition is heating up. Over the next few weeks, rates could reach levels that may not be seen again for an extremely long time.

Data released by the Bank of England shows that the typical two-year fix has dropped from 2.37 to 2.01 per cent over the past 12 months. On a loan worth £200,000 with a 25 per cent deposit, this would save a buyer £420 per year.

What’s next for interest rates?

We currently sit at 0% inflation – teetering on the edge of deflation. Bank of England Governor, Mark Carney, announced at a conference in Frankfurt last week that the next move for interests will be up, but chief UK economist at IHS Global Insight added that a likely rate increase won’t occur before the early months of 2016.

Whilst it is looking like low rates may be around for the next few months at least, they could vanish as quickly as they appeared so it is important that you seek the advice of a professional mortgage adviser who can give you advice specific to your circumstances.

For further information call into your local Farrell Heyworth office, freephone 0800 389 1666 or visit www.mortgageadvicebureau.com/farrellheyworth.

Your home may be repossessed if you do not keep up repayments on your mortgage.
There will be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.

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