Don’t worry about interest rates just keep calm and carry on

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by Franz Muehlthaler, mortgage adviser, Holroyd Miller Properties

Q: What can we expect from the mortgage market in the year ahead?

A: Well, 2016 will certainly be a year to remember. We sadly said goodbye to an astonishing amount of celebrities, then there was Brexit, Theresa May, Donald Trump, plastic fivers and, most importantly (in our world, anyway), record low interest rates.  

But with the Bank of England continuing to freeze the bank rate at 0.25 per cent, it poses the question: what does this mean for the year ahead? Will Interest Rates Rise?

With concerns over a slowing economy, the interest rate dropped in 2016 and saw lenders battling to retain the all-time low status for fixed rate mortgages. However, there’s been a recent change in sentiment and economists are now predicting that an interest rate rise could well be on the cards for 2017, with certain lenders showing signs of this already. 

Mortgage rates are largely influenced by something called ‘swap rates’. Following the Brexit vote back in June 2016, swap rates fell, which in turn saw lenders lower interest rates, particularly on fixed mortgages. Since then, there’s been a steady increase in swap rates which could partly explain the slow rise in interest rates we’re starting to now see. One lender has already announced they’ll be increasing the rates on all fixed rate products by between 0.1 per cent and 0.5 per cent.

This doesn’t come as quite so much of a shock when you look at recent Council of Mortgage Lenders figures that show how loan affordability is at a historic low for those on the housing ladder and those looking to get on it. But what does it mean for those looking for a mortgage? Just like none of us could have predicted Brexit or Donald Trump, we can’t predict which way interest rates will go in 2017. We can, of course, look at the facts, but even if interest rates do rise, fixing your mortgage now could still be the right option for you, as regardless of interest rates, a fixed rate can offer stability, which some people prefer to have. 

Information from the Halifax House Price Index data builds a positive picture of a calm market, showing signs of house price growth and stabilisation.

Brian Murphy, Head of Lending for Mortgage Advice Bureau comments: “The report released from the Halifax refers to September 2016 data, suggests a calm market; house price growth and stabilisation, with prices up +0.1 per cent on August, and up 5.8 per cent on the same quarter in 2015.

Overall the figures were 0.1 per cent lower than the previous quarter, which again could suggest that, whilst the pace of growth is slowing, over the last six months property values have, broadly speaking, ticked along at the same rate.

“With the on-going lack of supply, coupled with competitive deals and easing lending criteria available in the market, coupled with competitive deals and easing lending criteria available in the market, it’s possible that last quarter of 2016 will look pretty similar to what we’ve seen during earlier months in 2016, as house price growth and values could possibly remain steady for the foreseeable future. It’s also interesting to note that the Halifax say in their report that the figures released are in line with their forecast for 2016, which should provide reassurance, for those who need it, in terms of the market as we move forward into 2017. All in all, for me the Halifax figures would suggest it’s a case of “keep calm and carry on”.

Franz Muehlthaler is a mortgage adviser for Holroyd Miller Properties in association with Reach 4 Mortgage Solutions and Mortgage Advice Bureau