RAY BOULGER: No meat on no change
As anticipated there was no meat in the MPC’s no change statement today.
However, next Wednesday’s Quarterly Inflation Report will be awaited with more interest than usual.
After all the steers about the introduction of North American style “guidance” the key questions Mark Carney needs to address next week are what benchmarks the MPC will be targeting in addition to inflation.
One of the more obvious targets would be GDP but a problem that poses is that it is not only a rather backward looking indicator but also often amended more than once.
The first time the MPC deems it necessary to act outside the terms of whatever guidance it has given will raise serious questions about how much value should be put on guidance in future. Therefore perhaps targeting more than two measures would give the committee more flexibility.
Mortgage rates have been fairly stable over the last month, with rate movements both ways, in some cases reflecting lenders adjusting rates to tweak the split of business received between low and high LTVs.
However, the lowest fixed rates have changed little over the last few months, despite some lenders managing to feature in best buy tables by bringing in a new deal with a rate 0.01% below the previous lowest rate, sometimes with a bigger fee.
Too many so called best buy tables are purely computer driven and based solely on the headline interest rate. Lenders obviously know this and play the game, particularly where their marketing strategy is heavily based on getting the free publicity easily obtained by being featured in best buy tables.
Any regulated web site whose best buy tables are based solely on the interest rate should perhaps consider whether using the term “Best Buy Table” meets the FCA’s requirement for all financial promotions to be “clear, fair and not misleading.” If not perhaps a new name of “Lowest Rate Table” would be more appropriate. After all a £1,500 fee on a £100,000 2 year fix increases the effective rate by 0.75%. If the deal doesn’t offer a free valuation and free legal fees the effective rate will be increased by over 1%.
The impact of fees reduces as the term of the initial deal and the size of the mortgage increases. £2,500 of costs on a £250,000 5 year fixed rate mortgage increases the effective rate by just 0.2%, whereas the same costs on a £100,000 2 year fix would increase the effective rate by 1.25%!
What Should Borrowers Do?
In July 88% of John Charcol residential mortgage borrowers chose a fixed rate, a new record, and most borrowers choosing a tracker opted for a term tracker. A 5-year fix was the most popular fixed rate term, with 40% of borrowers choosing this option; 2 year fixes were chosen by 37% and 3 year fixes by 11% of our clients.
We continue to believe that 5-year fixes are the best option for most borrowers, with sub 3% rates available up to 75% LTV and rates to 80% LTV starting at 3.09%. For LTVs up to 75% Santander’s term tracker at Bank Rate + 2.19% is the pick of the trackers, not only because of the rate but also the low fee of £495 and the fact it has no early repayment charge.
However, obtaining specific independent advice is extremely important as everyone’s circumstances and priorities are different. The best mortgage for any one person, or couple, will depend on a variety of factors, not least which lenders’ criteria the borrower(s) are actually likely to satisfy.