It goes without saying that there is a lot of uncertainty surrounding the United Kingdom officially leaving the European Union. We don’t know yet what will happen with a lot of things, but there is no shortage of predictions on topics like mortgages. Needless to say lenders are looking for ways to get around regulations. Mortgage rates are down and people are hoping that they continue in this direction after the UK leaves the EU.
After the Financial Crash
The mortgage market has changed dramatically since the financial crash of 2008-2009. After this, lending became more tightly regulated but rates are lower than ever. Ten years ago, the UK was in the grips of a financial crisis and the government put new regulations on the mortgage market. Negative equity increased and prices went down. What happened was that homeowners were not able to sell their homes and become “mortgage prisoners.”
The change in the market is due to strict new lending rules. There has also been an explosion in the number of deals available. Rates fell quite a bit. The regulations were tightened to prohibit bankers and other lenders from giving out risky loans.
Plummeting since 2009, mortgages have continued to go down. Two-year fixed rates went from 4.93 to 2.44 percent according to the site MoneyPug, which is used for mortgage comparison. Around 10 years ago, the average mortgage deal for £100,000 over 20 years paid £656 a month. Now, the same terms are £527 a month. Fixed rates for three years have dropped from 5.6 percent to just 2.61 percent. Five year fixes went from 6.15 to 2.74 percent. Finally, 10 year rates deal have also dropped from 5.74 percent to 3.02 percent.
Over the past year there has been fierce competition between mortgage lenders that has suppressed rates. Political uncertainty may have affected confidence in mortgages over the last year. Sign in recent months suggest that the price war between lenders has taken its toll. Many lenders left the market this year and cited the price pressures as the reason for leaving the market.
Factors of Rates
Savings and mortgages rates are a part of a complex financial web for official lending costs. The base rate, money market funding costs, and competition for savers’ deposits. Traditional influence on fixed rate mortgages over the past decade has been swap rates. Obtaining fixed term funding on the market for lenders. Tracker rates over the same period has been Libor, the costs of floating rate funding on the market.
After the financial crisis, the Financial Services Authority cracked down with regulations. The changes that they made were designed to curtail the risky lending practices lenders engaged in the run up to the financial crash. These rules have made it tougher to get a mortgage. Now, especially as Brexit becomes a reality, lenders are starting to look for ways to get around regulations and approve riskier loans. Mortgages with low deposits recently hit its highest level since the financial crash.
At least one in 20 mortgages had a deposit around 10 percent or lower. The number of homeowners is growing, mainly for first-time buyers. This could leave the buyer at risk of owing more than their homes are worth. Bankers and other lenders are trying to make more money, they will likely push for more relaxed regulations after Brexit and may return to their risky behavior.
Expectations for the Future
28 percent of estate agents expect house prices to fall this year. More than half of these agents expect prices to stay the same. Furthermore, a quarter think that the number of sales will increase for first-time buyers. 58 percent think it will stay the same and a third think that demand will decrease. Finally, 28 percent think the supply will increase.
Although certain trends emerge, only one thing is for sure. We can’t really predict everything that will come of Brexit. It is tough to know how mortgages will be affected, but the country will likely try to make them easier to get. Rates will probably decrease and there will probably be more risky lending. But we will just have to wait and see.
Picture source: http://taxrebate.org.uk/