Recent political events (including the outcome of the US presidential election) have provoked economic uncertainty and encouraged a global bank operating in the UK, to remove the cheapest fixed-rate home loan from the market, with immediate effect.

This move is an indication that the era of record-low, fixed-rate mortgages may be coming to an end in the UK and has persuaded estate agents to encourage buyers to act now, before further rate increases by lenders operating in the UK. The relevant bank had been offering a mortgage that allowed customers to lock in for two years at a rate of 0.99%, but this deal has been pulled with immediate effect. The bank’s new mortgage offers are coming in at up to 0.5% higher.

The outcome of the US presidential election in November has led economists to predict, that the US central bank will raise interest rates more rapidly than had been anticipated, following the president-elect’s promises to cut taxes and increase spending on US infrastructure. Following the election, swap rates (the rates which banks pay to borrow from other banks) increased sharply. Such rates determine the price of fixed-rate mortgages. In turn, some banks have reviewed the prices of their fixed rate mortgages. Banks often try to pass on the “cost of funding” benefits and burdens to customers, and this appears to be the case in the recent pricing review by the bank in question.

Although long-term interest rates fell in the immediate aftermath of the Bank of England’s decision to cut interest rates in August this year, longer-term swap rates have risen since the start of November, coinciding with Trump’s victory.

The cost of borrowing for banks and building societies is likely to increase further over the coming years, owing to economic uncertainty and the UK Government’s Brexit negotiations. Increases in mortgage rates are likely to have an acute effect on borrowers at the bottom of the market, (i.e. first time buyers and home movers), at a time when the Council of Mortgage Lenders has stated loan affordability is at a record low.

Despite the healthy competition in the UK mortgage market, economic uncertainty puts upwards pressure on long-term interest rates, which is being felt in the fixed-rate mortgage market and experts believe this move could trigger further rises in mortgage pricing in 2017. For purchasers and home movers, the time is now to buy.

For further information regarding this topic or any other property and construction matter, please contact Joanne McIvor – Partner, Hayley Cloherty – Associate, or any member of the Edwin Coe Property or Construction teams.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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