Mortgage Rates Continued to Drop in March, Reports BoE

The Bank of England (BoE) has released its latest Money & Credit Report for March, revealing that mortgage rates continued to drop yet again in the month before last.

Average mortgage rates fell yet again in March, with two, three and five-year rates at 75% loan-to-value (LTV) all reaching record lows.

The Executive Director of the Intermediary Mortgage Lenders Association (IMLA), Peter Williams, explains what this means for the housing market: “Lower mortgage rates reduce borrowers’ monthly payments, thereby boosting housing affordability and easing the effects of high prices. This improving affordability is illustrated by the fact that the amount borrowers spend on paying off mortgage interest is at a low; in 2016, home movers spent an average of 7.2% of their income on interest payments, while first time buyers spent an average of 9.1%.  Many borrowers will also rightly look to capitalise on the fall in the average 10-year mortgage rate, and secure a long-term deal.”

Nevertheless, he highlights that the price of higher LTV products continued to rise in March, taking the average rate on a two-year fixed rate mortgage at 95% LTV to 3.99%.

“Higher LTV products are essential to providing borrowers with modest deposits with the opportunity to get a foot on the property ladder, and rising prices in this segment of the market could stretch affordability,” Williams says. “Ensuring that the housing market is open to a wide range of borrowers should be a key objective of both policymakers and industry, and it is therefore important that higher LTV products are accessible.”

Looking ahead, Williams predicts: “IMLA expects total gross mortgage lending to reach £260bn in 2017, which is 5.9% higher than the £245bn recorded in 2016. The market has been supported by high levels of public demand for housing from a variety of different customer profiles. Furthermore, low mortgage rates and relatively modest levels of inflation have instilled borrowers with confidence, and made them willing to take out loans for purchase.”

Are you confident in the future of the mortgage market?

Any landlords looking to take out buy-to-let loans must be aware of the Government’s recent phasing out of mortgage interest tax relief. These changes will restrict the amount of mortgage interest (and other finance costs) that investors can offset against tax.