The first ever fixed-rate mortgage charging less than 1pc goes on offer today as lenders ready themselves for fallout from Thursday’s poll. The deal, a two-year fixed rate at 0.99pc from HSBC, flies in the face of earlier suggestions that loan rates could rise in market turmoil triggered by the poll – regardless of the result. Instead, it confirms our earlier observation that both savings and mortgage rates are continuing to drift lower.
This appears to be the case even for fixed rates that apply to loans or deposits that run for longer terms of three, five or 10 years. An earlier view, articulated by The Treasury among others, was that a Leave vote could result in a falling pound, inflation and a rise in interest rates. But “swap” rates – the interbank rates that indicate the cost of capital changing hands between institutions – have fallen and remain low. Swap rates are a key determinant of the cost of fixed-rate mortgages.
Since the end of May and the middle of this month, swap rates for 10-year money fell by 16pc to 1.2pc. Over the same period the cost of three-year money fell by 17pc to 0.7pc, and two-year money fell by 14pc to 0.63pc. In the days since, these rates have ticked up, but remain close to all-time lows. Other factors also influence the price of mortgages, however, such as the degree of competition between lenders and their confidence in the housing market and wider economy.
Mortgage rates now
Rates remain at or near all-time lows, with the best rates for two-year and five-year fixed-rate loans at 1pc and 2pc respectively. To qualify for HSBC’s 0.99pc deal borrowers will need a deposit of 35pc or more. Top 10-year mortgages, which are less common and less popular, are priced at around 2.9pc. While these “standard” best-buy rates trail along rock-bottom, lenders have been lowering rates for higher risk and other, more niche borrowers as competition has increased. As yet there is no suggestion of rates ticking up, brokers say.
If you plan to remortgage soon, be aware that the best rates may be available only for brief periods and for limited amounts of borrowing. This is because the approach of the Brexit poll is causing volatility in capital markets and lenders are likely to earmark smaller pots of cash to lend at set rates. “No lender wants to be caught if the market moves against them,” the finance director of a leading building society told Telegraph Money. “When you lend money at a set rate you are taking a gamble on a number of factors such as the movement of rates in the market and the actions of other lenders and their pricing. “If the market moves against you, you have to withdraw your deals.” Using a broker can help clinch the very best rates as the application process can be quicker and the brokers’ relationship with the lender could help secure the rate you want.
Savings rates now
The savings market differs from the mortgage market in one key respect: banks and building societies are competing hard for mortgage borrowers – but they are awash with savers’ cash. This factor, along with wider downward pressures on rates, means savers’ deals are deteriorating rapidly. The top two-year fixed-rate bonds pay around 2pc, while five-year bonds pay around 2.7pc.
Anna Bowes of SavingsChampion, the rate-watching service, said: “We have definitely noticedrates continuing to fall in recent weeks and days. “Our understanding is that this is part of a ‘flight to safety’: as the referendum draws near, people are switching into cash and other low-risk assets. There is so much cash around that providers are not having to compete at all. They certainly do not want to have to pay any more than necessary to bring money in.”
High volumes of cash are likely to remain in the system, discouraging banks from paying to attract new funds. Prolonged uncertainty means rates may decline further whatever the poll outcome. If you see an attractive rate, act fast. It is also possible that – as with mortgages – where attractive rates are offered they will apply for very limited periods.