I was up before the crack of dawn yesterday morning, 4.15 am to be precise, for a stint on BBC Radio 5 Live’s’ “Wake Up To Money” followed by BBC Breakfast TV chatting about mortgage rates after one too many cups of strong coffee. We were talking about the different predictions around Bank Base Rate and what the hell the general public make of it all when it comes to making their own decisions with regards to their own mortgage.
One of the main areas of concern was not just the confusion that surrounds rates at present but the fact that some lenders have actually already started putting up their Standard Variable Rates, (SVR’s). To be fair this has generally been the smaller Building Society’s such as Mansfield and Cambridge but it does highlight the perils of staying on a lenders SVR.
These institutions have an issue. They claim that they need to do this in order to compete with state-assisted banks, as they have a delicate balancing act. Arguably it is more important at the moment for them to attract savers rather than lend money, and therefore they need to up their savings rate to attract business. Basic business sense means they can’t have high savings rates and low mortgage rates so mortgage rates need to increase.
As lenders seek to address their balance sheets it will not be surprising if more mainstream lenders also follow this trend. So again, it is important for consumers to look not just at the headline rate they may be getting now, but also to look at what the lenders variable rate is doing – at present we have SVR’s ranging from 2.5% to 6.45%! I would also tend to keep away from products discounted off the lenders SVR and stick with trackers.
There is however, some argument that in the medium to long-term the difference between the Bank Base and the lenders SVR will start to shrink again. In other words will we really still see SVR’s 5% higher than Bank Base once Bank Base is up at 4% again?
So, some economists believe we will still be at 0.5% by the end of the year whilst others see us at 2.5%. That is a big difference of opinion and I was also asked where I sat on that. To be honest I do believe we will see a change by the 3rd quarter of the year, and see a Bank Base of 1% to 1.5% by the end of the year.
I put a proviso on that however. Firstly that there is a decisive election outcome, a hung parliament helps no-one, and that there is no double dip recession.
Either way, even if competition does return to the mortgage market, and there is a lot of evidence to suggest it will further, it may well be worth reserving a product now at the very least as you may not be able to get such good products as you can now.