Experts say the cost of fixed-rate mortgages could climb higher ahead of an expected rise in interest rates.
Delivering his annual Mansion House speech in the City last week, Bank of England governor Mark Carney said an increase in interest rates could come “sooner than markets currently expect”. Ahead of his speech, markets were expecting a rise in spring 2015.
Capital Economics property analyst Matthew Pointon says: “Fixed-rate mortgage rates are based on swap rates. Two-year swap rates jumped from 1.1 per cent to 1.3 per cent so that could lead to higher fixed rates in the next couple of months.”
Middleton Finance mortgage broker Daniel Bailey says even before Carney’s speech fixed rates were on the rise.
He says: “I’ve been telling my clients not to go too much on the base rate because before that goes up, banks will be raising their rates further.”
Chancellor George Osborne has also announced plans to give the Bank’s Financial Policy Committee powers over loan-to-value and loan-to-income ratios. The Chancellor said he would aim to have legislation in place by the end of parliament in April 2015.
In March 2012, when the FPC set out which financial policy tools it wanted, power over LTVs and LTIs was not among them. Former Bank deputy governor for fin-ancial stability Paul Tucker told the Treasury committee in April 2012 that the power to limit mortgage borrowing should rest with the Government.
Any recommendations from the FPC for LTIs or LTVs to be capped would be put in place by the Financial Conduct Authority. Buy-to-let loans are currently unregulated but Pointon says this would have to change for the caps to be effective.
“The Bank has said if they do get these powers they couldn’t just apply to regulated loans because that would give a big advantage to buy-to-let loans, which are unregulated,” Pointon says.
However, London and Country associate director of communications David Hollingworth says he does not expect policy-makers to regulate buy-to-let in the short term.
“The UK Government lobbied for a buy-to-let carve-out in the Mortgage Credit Directive so although the question of regulating the sector will keep coming up, it’s been answered quite recently,” he says. “I don’t think it will change any time soon”.
Mortgage Concepts Associates director Mike Richards says capping LTVs or LTIs will “increase inequality” in the housing market. He adds: “If you’ve got money or a very high income, a cap won’t make much difference.”
Bank of England governor Mark Carney said last Thursday an interest rate rise could come “sooner than markets currently expect”.
Chancellor George Osborne also announced the Government will legislate to give the Bank’s Financial Policy Committee the power to set loan-to-value and loan-to-income caps. He said the powers should be in place by the end of the Parliament in April 2015.
Carney said there has been “concerning” increases in high LTI mortgages. He said the average household debt is now 140 per cent of disposable income and warned “economic expansion is more precarious” with such levels of debt.
Carney said the Mortgage Market Review and, “more worryingly”, would-be sellers holding off in hope of higher prices were behind a slow down in the housing market.