1 Percent Mortgages – How Long Can they Last?

In recent weeks there has been a flurry of sub-1 per cent mortgage deals launched onto the market. Lenders including HSBC, NatWest, Nationwide, Santander, TSB and Platform, as well as several building societies, are all offering two-year fixed rates starting with a zero, although admittedly only for those with 40 per cent deposits or similar levels of equity in their homes.

While those who need to borrow at higher loan-to-values will pay higher rates to do so, the good news is that pricing is falling across all brackets as cash-rich lenders compete for business.

These low mortgage rates are helping fuel house price growth. The experience of lockdown resulted in significant lifestyle changes, and a desire for more space, both inside and out, as well as the possibility of relocating thanks to not having to be in the office quite so much. The stamp duty holiday, introduced by the Chancellor last July, helped fuel demand, with buyers understandably keen to save up to £15,000 on stamp duty on their purchase. And then on top of all of this, ultra-low mortgage rates have given buyers confidence to stretch themselves to afford that dream home, even at a time when there is still so much economic uncertainty.

There have been murmurings that these low rates cannot last forever, namely because of rising inflation. Inflation rose by 2.5 per cent in the 12 months to June, up from 2.1 per cent in May. This exceeds the Bank of England’s 2 per cent target, and if inflation continues to rise, there is a risk that mortgage rates may end up going up as well. If this is the case, there is more reason than ever to fix now, snapping up one of these incredible deals.

There are also fears that the end of the stamp duty holiday in September will result in the housing market falling off a cliff, with prices plunging accordingly. However, most market commentators don’t seem to think this will happen as demand is still high and we are not building enough houses to meet it. Indeed, Rightmove reports that only 4 per cent of buyers in England would ditch plans to buy if they could not take advantage of the stamp duty holiday. A further 25 per cent said they would try to renegotiate with the seller on the price, while 13 per cent said they would try to buy a cheaper home.

What we are unlikely to see in coming months is a repeat of the rapid growth in prices, which is not necessarily a bad thing, particularly if you are a first-time buyer. Halifax reports that the average UK house price slipped by 0.5 per cent in June, the first monthly fall since January, although it also notes that average prices are still more than £21,000 higher than the same time last year. The lender added that the lack of stock and more buyers than properties for sale will ‘sustain high average prices for some time to come’. However, Halifax also pointed out that ‘we still expect annual growth to have slowed somewhat more by the end of the year, with unemployment expected to edge higher as job support measures unwind, and the peak of buyer demand now likely to have passed’.

If you are interested in one of these ultra-low mortgage rates, it is worth seeking advice from a whole-of-market broker such as AWS Private Finance. If you are buying, we can give you an idea as to how much you could borrow, so you don’t waste your time or anyone else’s. With so much demand for property, agents will want to see evidence that you are serious and have funds in place ready to move when you find the right property. Get in touch to find out more.
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