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Historic Low Mortgage Rates Leads to Increased Borrower Confidence

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Historic Low Mortgage Rates

UK mortgage rates have hit a historic low. Consequently, this has led to increased borrower confidence and a boost for the country’s housing market.

Moneyfacts.co.uk has found that the average mortgage rate on a two year fixed mortgage at a 60% loan-to-value (LTV) has fallen by 0.09% year-on-year. In December 2019 this average rate was 1.79%, compared to 1.87% in December 2018.

These drops are comparable to average rates on other mortgages. For example, a two year fixed mortgage at a 75% LTV is currently at 2.29%. In December 2019 it stood at 2.3% and at 2.37% in December 2018.

These low mortgage rates are encouraging for buyers and the UK’s housing market in general. UK Finance data shows that both home-mover and first-time-buyer mortgages increased during the final month of 2019.

The data reports that there were 29,400 home-mover mortgage completions in December 2019, and 29,490 first-time-buyer mortgage completions. This is an increase on December 2018 by 3.2% and 0.3% respectively.

Increase in remortgages

Remortgages with additional borrowing grew by nearly 6% in December 2019 compared to December 2018.

Finance expert Eleanor Williams said that seeing this increase of buyer confidence during a traditionally quiet time of year is very positive. She went on to say, “It may be that the level of competition among lenders, which has resulted in rates falling to attractive lows, is enticing borrowers to take the plunge and purchase, or indeed to refinance their existing deals.”

Samuel Tombs, chief UK economist at Pantheon Macroenomics agrees: “The jump in mortgage approvals in December likely solely reflects the stimulus provided by the sharp fall in mortgage rates in the second half of last year. The additional boost to approvals from the result of the general election still is to come.”

The average value of these mortgages had also increased. In December 2019 the average mortgage value was £217,900; a growth of 2.4% on November and the second strongest monthly increase since May of that year.

Despite the positive performance, some economists urge caution. The ongoing trade deals with the UK are continuing to create uncertainty. There is still the risk that the UK may leave the EU without a deal at all, which could be disastrous for the UK economy.

Any poor economic growth and uncertainty would lead to a weak property market. Even in spite of low interest rates, government fiscal stimulus and a housing shortage, the outlook for the UK’s economy in 2020 may still be challenging.

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