Once February 2018 is done and dusted there is a very strong chance that mortgage rates will start going up. Why? Because, quite simply, there is no longer anything to stop them.
Or at least, the Term Funding Scheme (TFS) comes to an end. Introduced by the Bank of England just days after Britain voted to leave the EU back in 2016, it hasn’t exactly been a well-publicised scheme: only the UK’s financial lenders were really made aware of its existence, being the ones who would benefit from it.
And that’s because the whole point of TFS was to provide interest-free lending to banks and building societies. It was in an effort to ensure that the Bank of England interest rate cut of 0.25 per cent granted post-referendum did indeed make a difference to the UK economy by keeping it stable at a time of potentially incredible instability.
Feb 28 equals pay-back time for lending institutions
But on Feb 28 that interest-free lending pot for banks and building societies comes to an end. To the extent that it will be time for all those financial institutions to start paying back the cash to the Bank of England – an eye-watering total of £106bn.
To do that lending institutions are going to have to attract lots of savers; the best way to do this is, of course, to offer impressive interest rates. In fact, some financial analysts are already predicting that a one per cent interest rate on savings accounts within the next two to three years wouldn’t be too far off the mark. In the interim they are suggesting 0.25 per cent to 0.5 per cent by this time next year. It sounds pretty unbelievable considering we have been starved of decent savings interest rates for the past five years at least. But that’s now all about to change…
And this is where the rise in mortgage interest rates comes in. For, in order to be able to afford the interest rate rise in savings accounts, banks and building societies are going to have to offset this cash against mortgages rate rises. It makes perfect sense. And it is why remortgaging now rather than later is an absolute must “look into” – particularly if you happen to be an investor with a decent-sized property portfolio. And when you do find an interesting deal then ask yourself whether go for a long-term fixed rate would be better for you than a short term one – in other words, a two year deal isn’t going to save you much, a five year deal on the other hand, perhaps will – especially when multiplied by a number of properties.
Mortgage rates are not likely to get any lower this year – or for the next couple of years at least.
Meanwhile, to give you some idea of how that £106bn is made up, £18bn went to Lloyds Bank, £14bn to RBS, £10bn Barclays, £9.5bn Nationwide and Santander took £8bn. Aldermore – which specialises in buy to let mortgages – took £1.4bn while it has lent £1.5bn.
If you would like to speak to an expert about your mortgage options, contact us today: 020 8558 1147