City firm predicts that super-cheap home loans will be offered as a result of competition between lenders to attract new business.
The fixed interest rate of mortgages could fall to less than 1% next year if the Bank of England cuts the base rate again, in a move that would give the housing market a boost. Written by Jill Treanor for http://www.the guardian.com
Super-cheap home loans could give the market a boost after the vote for Brexit, which forced Threadneedle Street to cut rates to 0.25% in August. This was the first rate-cut for more than seven years and economists expect the Bank to cut the base rate again – to just 0.1% – possibly in November.
According to analysts at Bernstein, which is based in the City, another rate cut from the Bank of England would drive standard two-year fixed-rate mortgages to 1.1% – and to less than 1% for customers with a good credit rating.
The analysts at Bernstein said that customers looking for two-year fixed-rate mortgage with deposit of at least 20% of the value of the property would currently pay between 1.6% and 1.7%. “The bet is that it gets another 50 basis points [half a percentage point] cheaper,” the analysts said.
They calculate mortgage rates could reach 1.1% by the middle of next year, adding: “If your credit rating is fine, you are probably going to get a cheaper mortgage from either a bank with excess deposits (HSBC, Royal Bank of Scotland) or ones desperate to grow their book – that’s sub 100 basis points (1%).”
HSBC is already offering a mortgage rate of 0.99% for two years for customers with a deposit of at least 35% – but no other bank is offering rates lower than 1%. Repayments on a £150,000 mortgage are £565 a month, according to David Hollingworth, of mortgage brokers London and Country, although the product has a fee of £1,499 which could prove expensive for customers with smaller loans.
The Bernstein analysts argue that rate cuts will be generated by competition in the mortgage market – traditionally dominated by six players controlling around 75% of lending – and the fact that it is relatively cheap for lenders to attract new customers.
Figures from a property website, Rightmove, published on Monday show that house prices are up 4% on last September. Hollingworth said that any further rate would spur activity in the market – even through rates are already record lows.