Eurozone crisis pushing up mortgage rates
The issues on the eurozone are making life tough for lenders. And that means more expensive mortgages.
The Eurozone has gone into meltdown. Greece’s economy has collapsed, and it now looks set to leave the Euro. Spain’s banks are being downgraded by rating agencies.
And the issues on the continent will be felt here in the UK.
One area where we will likely see an impact is mortgage rates. While bank base rate shows no sign of moving anytime soon, the interest rates we pay on our homeloans look set to increase regardless.
Funding issues
According to the Bank of England, we should all get ready for sharp increases in mortgage costs as a result of continental troubles. In its inflation report, the Bank said:
“In the absence of falls in funding costs, it suggests that some further increase in mortgage rates is likely as banks seek to restore their margins.”
In other words, banks are finding it harder to get enough money to fund their mortgages, and will be passing on that extra cost to borrowers in the form of higher rates.
Bernard Clarke, communications manager for the Council of Mortgage Lenders, highlighted that the crisis has made banks reluctant to lend to each other, making it harder and more expensive to access wholesale funding.
He added: "One way to counter that is to compete for retail deposits, but increased competition there may push up prices too. The combination of these two things is likely to result in higher mortgage costs over a period of time, probably the coming weeks and months.
In fact, there are signs that the Eurozone upheaval is already affecting the cost of buying a home. Mortgage rates across the board have increased since the turn of the year, with significant increases in the last couple of months.
The table below shows the average interest rate in February, compared to today:
| February | May | |
| Two-year fixed | 4.36% | 4.66% |
| Three-year fixed | 4.63% | 4.86% |
| Five-year fixed | 4.64% | 4.86% |
| Two-year tracker | 3.54% | 3.71% |
| Lifetime tracker | 3.58% | 3.80% |
So what should borrowers do now?
Nick Cooper, mortgage adviser at lovemoney.com Financial Services, noted that short-term tracker rates will still be attractive to borrowers, given they are not expected to increase much for a couple of years. But it's a gamble: "The trouble is that at the end of those two years you may find that a five-year fixed rate will cost you more than it will cost you now."
Mortgage rates are going up, both in the short term and the long term. If you need to review your mortgage, sitting on your hands may hit you hard in the wallet.
More on mortgages and property:
Why you should beware the best buy mortgage tables
Clydesdale and Yorkshire Banks launch fee-free mortgages for small deposits
What to do if you're at risk of repossession
How to deal with property chain problems
The pros and cons of online estate agents
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Comments
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Yes rates will go up, but it's stuf all to do with the Eurozone crisis. It's to do with bankers greed. - If banks are so hard up , how come they can afford billions in bonuses? How come the differentila between what they borrow at (most of them recently took billions from the Eruo bank at 1%), and what they lend at is bigger now then its ever been. -- Especially with credit cards. I took out my mortgage over 20 years ago. Thye borrowed that money over twenty years ago, so how can it be costing them any more? Like all parasites, they just don't know when the host can't take any more. The bankd will collapse, the bankers themselves will get bumper bonuses, and the rest of us will have to pick up the pieces while they retire in luxury. The trouble is you see, that all they can see is the money, their idea of long term planning is unziping their trousers before actually urinating (usually on us). As for common sense, - not an ounce between them, To them ethics is a county accros the river from thuthix And morality is 'as long as it isn't actuall proven to be illegal, then it's OK' And this Fits Simon bloke is one of them anyway
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Bamks are having to rebuild their balance sheets, and that means risky lending is out and that includes to some other banks. Savers though are not seeing their rates go up -the trend in recent weeks has been marginally down. so banks are increasing their margins and in turn their profits. The trouble in this country is that people want everything for nothing and don't want to be accountable for their actions, although of course, any problems are always somebody else's fault. But we can see clearly now that irresponsible lending can cause problems - Witness Spain which didn't have a sovereign debt crisis until its property sector went bust taking the individuals who bought at too high a price, developers who over borrowed, banks who over lent and the spanish government who bailed the banks out with them. A realistic view has to be taken of all this - if an entity is likely to go bust then the last thing you want to do is to lend them more. Limit losses by taking the smallest hit - its painful but absolutely necessary - and less painful than pouring more into the hole.
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Is this guy that writes these articals getting paid by the mortgage companies to try and frighten people and make them take out yet another 2 year fixed ripoff mortgage? Hold fast people interest rates may come down yet!
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01 June 2012