The housing market has had some problems lately. Worries about Brexit may have been behind some corrections in areas that had become overheated, while estate agents up and down the country report that the average home is taking longer to sell.
There is currently some debate about whether prices are falling, stable or ready to take off – but one thing looks certain – there could be some exciting deals on mortgages.
A January Sale of mortgages?
Mortgage lenders, like any other business, have targets. It they don’t write sufficient new mortgages, their business will shrink as mortgages are paid off. So, just like the shops on the high street, they may drop prices to bring customers back in.
But of course, there are less people moving at present – which means that there are few people looking for a mortgage in the first place.
Many lenders are now in the final quarter of their financial year. Looking back at their performance in 2018, they may be very keen to stimulate new business before they close the books in March.
The result may be that lenders are not only dropping their rates, some of them may be trying to drop them faster and further than their competitors.
The result is a sale of mortgages. January saw some low rates, and things might continue until the end of the tax year.
There really does seem to be a price war as lenders compete for home buyers.
How low can it go?
While rates are not quite at the exceptionally low levels that they reached at the tail-end of 2017, they are still very cheap compared with the historical averages.
According to Moneyfacts, the average two year fixed mortgage for those with a 5% deposit (95% loan-to-value) has dropped from 3.95% to 3.41%.
But things cannot go on like this forever. The lenders need to make some profit, and if they get to the stage where the mortgage business becomes uneconomic, they will have no alternative but to pull out of it.
We have already seen signs of this. The smaller lenders, with less reserves and none of the economies of scale of the larger names are already facing some difficulties. Secure Trust, Fleet Mortgages and Amicus announced last month that they would stop lending to new customers.
The mortgage business is still basically sound. But it does indicate the pressures lenders are under.
What does this mean for you?
Of course, few of us will shed a tear for the mortgage lenders who have fallen on hard times. They will still be enjoying a comfortable profit from existing mortgages.
In fact, you could take advantage of their predicament.
It may be a very good time to get on the housing ladder. The housing market is slow – the typical home now takes four months to sell, according to industry figure from RICS (the Royal Institute of Chartered Surveyors). It means that those who need to sell may be open to an offer.
Then of course, it should be possible to get a low priced mortgage. With fixed rate deals now available at up to ten years, you might be able to enjoy the low rates for a long time to come.
If you are already in a home that you like and have no intention of selling, you can still be a winner in the mortgage price war. Rates for re-mortgaging are also low. It could be time to shop around.
A note of caution; low rates make the headlines, but they are not the whole story. There can be hidden charges for arrangements and surveys that bump the cost back up.
The best plan may be to get expert help. At Continuum, we have mortgage experts who can help you find the mortgage that really is right for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
moneyfacts.co.uk – Average two-year mortgage rate below 2.5% – 26th November 2018
moneyfacts.co.uk – First-time buyers enjoy average two-year rate fall – 8th February 2019