What will happen to mortgage rates if the predicted change of government comes to pass?
With the General Election imminent, and with many predicting a change in the governing party or at the very least the need for coalition negotiations due to no clear majority, major banks are probably now also gearing up for a change in financial leadership direction.
Whether this comes from pressure to make changes to ease the continued cost of living pressure on households or new fiscal policies having an impact, it is likely that in the short-term there will be some affect not only on mortgage rates but also on the Bank of England's interest rate.
As a side note, many financial gurus and experts have already indicated that they believe interest rates will be on a downward trajectory in the near future (August latest); many had hoped that this would already have been put into motion in June with inflation having dropped close to and now at the 2% target. I guess there is still money to be made for 'someone'!
Unusually, in the past week, ahead of the election, we've seen movement from a number of the 'big' banks as they announce mortgage rate cuts on some of their products:
Two big banks, Halifax and Santander, have announced mortgage rate cuts, leading to a downward shift in home loan pricing.
Halifax and NatWest have reduced rates by up to 0.23%, while Clydesdale Bank stated that its rates will decrease by 0.38%.
Industry experts suggest that this move could intensify a rates battle among the UK's largest lenders.
Three major UK lenders have recently lowered their fixed mortgage rates in anticipation of interest rate cuts following the upcoming election.
Recent Bank of England data revealed mortgage approvals for house purchases fell from 60,800 in April to 60,000 in May, while approvals for remortgaging decreased slightly from 29,900 to 29,600 over the same period. This is obviously not a dramatic fall but still shows the market has stalled somewhat; not an unusual circumstance around a general election, as has been proven over time. However, to keep the economy moving, banks will be keen to encourage house purchases and mortgage uptake, so would hope that these incremental mortgage rate cuts, alongside a potential BofE rate decrease will make the market more accessible for buyers and remortgagers. It is also likely, as has also been shown historically, that once a government has been elected and is in place, that there will be a spike in property sales and purchases that will counteract this slight downturn. Any changes to rates in a positive, downward direction will only help to speed up this process.
However, the Labour party who many expect to win the General Election, have traditionally been viewed as unfriendly to banks, taking a more anti-capitalistic stance, which the banks tend to exemplify. Yet in recent years they have been engaging with lenders in an effort to give comfort to voters that they will work with, and not necessarily against, the financial institutions. This will obviously give more stability to the markets, as they will not be facing a complete unknown.
So, what does all this mean for those of you looking for funding, looking to remortgage property portfolios or to increase your property holdings? Well, mortgage rate decreases and interest rate decreases (if they come into effect) can only be a good thing. Especially when coupled with the drop in inflation, this may start to ease pressure on what can be generated as net profit, leaving more funds to progress and grow your property business. Will the mortgage rate decreases only be available to first-time buyers/newbies to the property market? Or will we see some changes to the BTL offerings available?
As Labour have stated in their manifesto, they wish for 1.5 million homes to be built over the life of the next parliament and have pledged to reform the planning system to aid this process! This could only be good news for those who have been frustrated beyond measure with the delays in the current planning system and you would imagine on the back of these two pledges that they will plan to put in place the mechanisms to allow for these process reforms to be actioned - opening up the ability for developers to develop! And that includes avenues of financing!
At this stage the only thing we can really do is wait and see: time will either promote or expose. Hopefully it won't be another cycle of pledging but not fulfilling and Britain truly will 'get building again'!
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