Mortgage rates drop to their lowest level

Borrowers benefit from Bank of England delaying a rate rise as the housing market weakens

Mortgage rates fell to their lowest level ever in April, according to the Bank of England, as the average borrower paid just 2.41 per cent on a new mortgage. Mortgage rates fell as forecasts for an interest rate rise by the Bank were pushed back, after some of the best mortgage deals on offer were scrapped earlier in the year.

HOME buyers in April paid the lowest interest rates ever on their mortgages, according to the Bank of England.

Earlier in the year banks and building societies had expected the Bank of England would soon start raising the base rate, and so some of the best deals on the market were scrapped. Since then, however, forecasts for an interest rate rise have been pushed back, and some Bank of England officials have even discussed a cut to the base rate to below its current 0.5 per cent.

As a result, mortgage rates are once again falling – in April the average borrower paid just 2.41 per cent on a new mortgage, down from 2.64 per cent in April 2015.

The Bank of England’s data go back to 2004 – in April of that year, the average mortgage rate was 4.55 per cent.

The Bank of England’s data also showed that mortgage lending, for 2016 so far, is at the highest level since the financial crisis.

A total of 497,301 mortgages were given out between January and April, up 17.6 per cent on the same period of 2014 to the highest level since the financial crisis. The pace of lending, however, has varied.

In March, lenders gave out 124,429 mortgages, up 19 per cent on the year as buy-to-let investors scrambled to beat the rise in stamp duty on second properties, which came into effect in April.

As a result, lending fell to 119,796 mortgages in April, down on the month and slowing annual growth to just 4.5 per cent.

Once loan repayments are taken into account, net mortgage lending fell sharply, down from £7.4 billion in March – roughly twice the usual monthly level – to £281 million in April, as the tax changes were felt.

“The strong suspicion is that housing market activity will be pressurised in the immediate term by a combination of weakened interest from the buy-to-let and second-home sectors as well as heightened concerns and uncertainties over the UK economic outlook, particularly in the run-up to the referendum on EU membership,” said Howard Archer, chief economist at IHS Global Insight.

“Nevertheless, we expect housing market activity to regain limited momentum in the latter months of 2016 on the assumption that a vote to stay in the EU reduces uncertainty and supports a pick-up in economic activity. High employment, decent purchasing power and the probability that interest rates will not rise for some considerable time to come (and highly unlikely in 2016) should underpin house buyer interest. A shortage of properties will also likely provide support to house prices.”