Mortgage rates are unlikely to fall below 4 per cent over the next 12 to 18 months even if interest rates are cut, a leading housing expert has said.
“Most people are expecting the base rate to level out at 3.25 per cent on average for the next five years, which will mean we see mortgage rates of between 4 and 5 per cent once banks’ margins are added on top,” said Richard Donnell, head of research and insight team at Zoopla.
He is one of several experts that have warned homeowners will have to accept a new normal for interest rates.
Charlie Nunn, the chief executive of Lloyds Banking Group, said this week that a return to ultra-low interest rates is unlikely.
Speaking to Sky News on Thursday, he said that the base rate – the official rate of interest decided by the Bank of England used to determine mortgage lending – is unlikely to go below 3.5 per cent over the next five years.
“That means the new normal for mortgages will be in that 3.5 to 4.5 per cent range, not 1.5 to 2.5 per cent,” said Mr Nunn.
This is despite expectations that the Bank of England will cut the base rate from its 16-year high of 5.25 per cent in the next few months.
Most economists are suggested that September will be the most likely time for this to happen, but others are predicting August.
On the upside, said Mr Donnell, the country’s banks and building societies have lots of money and “want to lend”.
He adds: “The good news for homeowners is that lenders are racing to the bottom [in terms of rates] to make lending as attractive as possible, however they still need to achieve their margins.”
The emergence of rock-bottom interest rates has been a feature of the economy after the financial crash of 2008.
To help the economy recover, cheap money was pumped into our economy to stimulate growth by the Treasury in a process known as quantitative easing.
The Bank of England decided to keep the base rate historically low in the decade after. Pre the crash, in 2007, best-buy mortgage rates were about 5 per cent.
Currently, the average two-year fixed residential mortgage rate is 5.97 per cent, while the average five-year fixed residential mortgage rate is 5.55 per cent.
“Now inflation has fallen back to target, we are seeing some rates reduce rates already. But these are small falls,” said Andrew Montlake, spokesperson for Coreco mortgage brokers.
“If we get two rate cuts this year then over the course of this year then mortgage rates may fall a quarter or half a percentage point, but nothing more. If you are looking to wait to do something on the premise of mortgage rates coming down a lot, I personally think that is going to happen this year”.
He added: “If you are waiting on buying a house, after the election when you have a stable government you might see there’s a lot of pent-up demand and people might start buying again and house prices will go up. You have to trade off will rates fall versus will house prices go up. I think now is a good time to buy while you can still get deals on property.”
Despite the warnings, Coventry Building Society followed a number of major lenders to cut rates this week. The lender lowered two, three and five-year fixed rates by up to 0.21 per cent today (Friday).
It follows HSBC, NatWest and Barclays all cutting rates in the past week.
