Effect of withdrawing cheap lending on intrest rates

w00519772

The Bank of England is withdrawing cheap lending according to this article: http://www.telegraph.co.uk/finance/economics/10480502/BoE-scraps-Funding-for-Lending-for-mortgages-to-cool-housing-market.html, which I read last year.

Are retail banks like HSBS and Santander likely to raise their interest rates for mortgage customers as a result of this? The opinion seems to be that interest rates may go up as early as autumn so I guess not? I suspect that retail banks will approve fewer mortgages rather than increase interest rates.

I am a FTB and I am trying to figure out if interest rates will be higher if I do not arrange the mortgage before February.

thequant

yes it will, even if the base rate doesn't change.


when this scheme was introduced rates fell despite the base rate remaining the same. Therefore it's withdrawal will cause rates to increase.

w00519772

thequant wrote: »

yes it will, even if the base rate doesn't change.


when this scheme was introduced rates fell despite the base rate remaining the same. Therefore it's withdrawal will cause rates to increase.

Thanks for that. When would you expect them to start going up (in your opinion)? The following article seems to suggest that it is not "an immediate choking off": http://www.telegraph.co.uk/finance/personalfinance/interest-rates/10480639/Mortgage-and-savings-rates-could-rise-as-FLS-is-curtailed.html.

thequant

w00519772 wrote: »

Thanks for that. When would you expect them to start going up (in your opinion)? The following article seems to suggest that it is not "an immediate choking off": http://www.telegraph.co.uk/finance/personalfinance/interest-rates/10480639/Mortgage-and-savings-rates-could-rise-as-FLS-is-curtailed.html.

It's going to vary by lender, as it depends on how much of the cheap funds each lender has left.


From what I've heard some lenders will be very soon as in weeks, others maybe 6 months plus.


I'm in the process of arranging my mortgage now for this very reason.

w00519772

thequant wrote: »

It's going to vary by lender, as it depends on how much of the cheap funds each lender has left.


From what I've heard some lenders will be very soon as in weeks, others maybe 6 months plus.


I'm in the process of arranging my mortgage now for this very reason.

Thanks again. Do you know what lenders speculate six months? Have you found a property? I believe you are allowed to arrange a mortgage without having a property in mind.

thequant

w00519772 wrote: »

Thanks again. Do you know what lenders speculate six months? Have you found a property? I believe you are allowed to arrange a mortgage without having a property in mind.

yes I have found property, my lender said they would "lock in" my interest rate from the point I submitted my application, however I'm still waiting for the lender to make a decision.


No idea which lenders will move first, common sense tells me that it will be those who are at the top of the best buy tables.


a) it's cheap money that got them to the top of the table
b) these will run out of money first due to demand from people like me and you.

brit1234

Also as the US continues tapering (cutting) QE that will make money more costly to borrow and higher mortgage rates.

On a plus note savers may get some much need relief by getting more interest.

HAMISH_MCTAVISH

w00519772 wrote: »

Are retail banks like HSBS and Santander likely to raise their interest rates for mortgage customers as a result of this?

The opinion seems to be that interest rates may go up as early as autumn so I guess not? I suspect that retail banks will approve fewer mortgages rather than increase interest rates.

I am a FTB and I am trying to figure out if interest rates will be higher if I do not arrange the mortgage before February.

Really complicated question to answer.

So the very simple answer is that mortgage rates for some products are likely to rise (slightly) this year, while for other products they're likely to fall.

If you're looking for a low LTV mortgage currently seeing very low rates thanks in part to FLS , then rates may drift upwards a smidgeon over the next year, but I don't expect it to be dramatic. The scheme has ended because it's no longer required, as availability of funding has improved so much, so competition should keep the lenders honest with pricing.

If you're looking for a higher LTV mortgage then the ongoing increase in funding availability through HTB2 may well drive competition in the market and inspire lenders to lower margins in order to chase market share. Meaning rates may fall slightly.

I would though expect rising house prices to be a bigger factor for most people in most areas, so probably better to buy sooner rather than later in any case.

chris_m

brit1234 wrote: »

On a plus note savers may get some much need relief by getting more interest.

Looking out of my window, I can see 23 Porcine Squadron looping the loop, all tails perfectly curled.

w00519772

HAMISH_MCTAVISH wrote: »

Really complicated question to answer.

So the very simple answer is that mortgage rates for some products are likely to rise (slightly) this year, while for other products they're likely to fall.

If you're looking for a low LTV mortgage currently seeing very low rates thanks in part to FLS , then rates may drift upwards a smidgeon over the next year, but I don't expect it to be dramatic. The scheme has ended because it's no longer required, as availability of funding has improved so much, so competition should keep the lenders honest with pricing.

If you're looking for a higher LTV mortgage then the ongoing increase in funding availability through HTB2 may well drive competition in the market and inspire lenders to lower margins in order to chase market share. Meaning rates may fall slightly.

I would though expect rising house prices to be a bigger factor for most people in most areas, so probably better to buy sooner rather than later in any case.

Thanks. What do you mean by a "smigeon"? Some people say a small amount is: 1%, others say a small amount is: 0.1%.

HAMISH_MCTAVISH

w00519772 wrote: »

Thanks. What do you mean by a "smigeon"? Some people say a small amount is: 1%, others say a small amount is: 0.1%.

A few tenths of a percent.

If the best buy for a particular lower LTV product is currently 2.49%, it may become 2.59% or 2.69% or 2.79% over the next year as the removal of FLS works through the system.

Whereas if the best buy for a 95% mortgage is currently 5%, for example, it may fall to 4.75% or 4.5% by the end of the year.

I think the increase in competition via HTB2 at higher LTV will have a slightly greater effect on bank margins than the removal of FLS on low LTV.

Although as stated earlier, for most people in most areas rising house prices will be by far a bigger factor than any gains or losses to be had from changes to mortgage rates.

You're talking about tenths of a percent for mortgage deals*, but quite possibly 10% on average in the next year on prices.








*Important caveat: Other factors are at work here as well in determining mortgage rates, such as 10 year gilt yields, base rates, wholesale market funding costs, etc, I'm only talking about the differences due to the removal of FLS or addition of HTB2.

I did mention it's complicated