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Brexit vote ‘could make mortgages cheaper’
It’s a week now since the UK voted to leave the European Union. After weeks of uncertainty about how house prices and mortgages could be affected leading up to the vote, some lenders are now predicting mortgages will become cheaper.
But why is this, and should you wait before you apply for a home loan? Read on to find out more.
Interest and swap rates
One reason housing experts are predicting a fall in mortgage costs is that the Bank of England is believed to be preparing to cut the base rate. This has stood at 0.5% since 2009, but some are now forecasting that in order to bolster the economy the Bank could slash it even more – to 0.25%.
With this potential rate cut in the pipeline, some experts suggest that mortgage lenders will get ahead of the curve and reduce their own rates to attract borrowers.
Another factor that could affect mortgage rates is the recent fall in swap rates. A swap rate is the cost to a lender of switching from a floating to a fixed rate when they borrow on the money markets. The movement of swap rates can give a hint at whether mortgage rates will go up or down, and since the vote in favour of Brexit, swap rates have fallen.
Should I wait to get a mortgage?
With swap rates falling, chances are fixed-rate mortgages could be the first to come down in price. Other mortgages like trackers could follow, but if you want to get a fixed-rate mortgage, should you wait or do it now?
Speaking to This Is Money, John Charcol housing expert Ray Boulger said: “I am convinced rates are going to come down, so my advice would be for borrowers looking for a fixed-rate mortgage to hold off until lenders act.”
Borrowers often choose a fixed-rate mortgage to protect themselves in case the Bank of England puts the base rate up. When this happens, lender’s own rates and tracker rates can also go up, but a fixed rate will stay the same until the end of your mortgage term.
However, if you take out a fixed-rate mortgage and then interest rates go down, you will not benefit from reduced repayments. So, if there’s a good chance that rates are set to come down, you might be tempted to wait and bag a better deal.
What’s right for you?
Having said all that, only you can decide what’s right for you when it comes to buying a home. Yes, interest rates could come down and this may open up a range of lower mortgage rates to you. This is certainly worth considering as it could mean you pay less each month, or that you’re able to borrow more because you’ll save on interest.
However, if you’ve been saving for ages, have made an offer on your dream home and you don’t want to delay your journey up the property ladder any longer, you don’t have to wait. As long as you know there’s a chance rates could come down and you don’t mind missing out on a better deal, there’s nothing to stop you taking out a mortgage now. After all, there’s no telling when – or if – mortgage rates will come down.
There’s a long way to go before the UK splits from the EU and it’s hard to say what will happen when it does. If you’ve saved up a deposit and are in a good position to secure a mortgage, you may want to prioritise this over market speculation.