The Bank of England’s increase to the base rate has affected mortgage rates and resulted in the number of deals falling by 307 products in just three months, warns Moneyfacts.
What’s the latest?
The number of people remortgaging soared in the final quarter of 2017 as homeowners adjusted to rising interest rates.
The Bank of England recorded its biggest change in demand from people switching loans since 2009 during the three months to the end of December.
But the rise came as competition in the mortgage market slowed significantly, with rates rising and product availability falling, particularly for people with small deposits.
More than 300 products were pulled in the final quarter of the year, while the average cost of a two-year tracker mortgage rose from a record low of 2.20% to 2.35%, according to Moneyfacts.
Why is this happening?
The steep rise in people remortgaging is unsurprising given the fact that the Bank’s Monetary Policy Committee increased interest rates for the first time in more than 10 years in November.
The move, which was flagged well in advance, led to a rush among homeowners to take out fixed rate deals, enabling them to lock into low mortgage rates while they were still around.
Meanwhile, Moneyfacts said the increase to the base rate made it increasingly difficult for lenders to maintain their mortgage rates at the record low levels previously seen.
Who does it affect?
People with only small deposits have been most affected by the changes mortgage lenders have made to their range since interest rates rose.
Moneyfacts said 74 different deals have been withdrawn for people borrowing between 90% or more of their home’s value since November, while four lenders have exited the 95% loan-to-value sector altogether.
Sounds interesting. What’s the background?
While it is bad news for homeowners that mortgages rates appear to have reached their trough and are now rising again, it is important to remember they still remain very low by historical standards.
Moneyfacts added that although 307 products have been pulled, there are still more than 4,500 different deals available.
Meanwhile the Bank of England’s Credit Conditions Survey showed that mortgage availability had remained broadly unchanged in the final quarter and it was not expected to change in the coming months.
This is good news for those hoping to take out a mortgage, as banks have significantly decreased the amount of lending they do through loans and credit cards during 2017, and they have warned of a further decrease in the first quarter of this year, accompanied by significantly tighter credit scoring.
Top 3 takeaways
- The number of people remortgaging soared in the final quarter of 2017
- The rise came as competition in the mortgage market slowed significantly
- More than 300 products were pulled, while the average cost of a two-year tracker mortgage rose from a record low of 2.20% to stand at 2.35%
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