Mortgage rates continue to fall - but not for wealthy borrowers
This month sees the seventh anniversary of the Bank of England cutting interest rates to their historic low of 0.5%. Despite the cost of borrowing having fallen to record levels in that period, mortgage rates in the UK are still continuing to fall for many.
For seven years, borrowers have benefited from the Bank of England base rate remaining at a historic low. And, despite no change to the base rate, mortgage rates in the UK continue to fall as competition between lenders drives down the cost of deals.
Recent figures published in The Guardian have revealed that the average mortgage rate has fallen by around a third over the past six years, saving borrowers £270 a month on a £200,000 mortgage.
Separate data from the Bank of England shows that the average cost of a five-year fixed-rate mortgage for a borrower with a 25% deposit has fallen from 3.98% to 2.77% since 2009. Rates on two-year deals have fallen from 3.98% in 2009 to 1.95% today.
Mortgage expert David Hollingworth warned that borrowers should not get complacent, reminding borrowers that while the base rate has languished at 0.5% for many years, at some stage it will rise.
“It is wise to prepare for this change, and take action," he says. "This includes taking the opportunity to cut the rate you’re paying with ongoing competition between lenders and attractive deals around. Also, prepare for a rise by overpaying to get rid of debt more quickly.”
Wealthy homebuyers being denied the best mortgage deals
While competition between lenders has driven down rates, many of the wealthiest homebuyers are being denied access to the very best deals, despite exemptions to affordability rules which should allow them to borrow the amounts that they need.
In April 2014, the Financial Conduct Authority imposed constraints on affordability for mortgage borrowers under the Mortgage Market Review. However, that process exempted 'high net-worth' borrowers, defined as those earning more than £300,000 a year or with more than £3m in assets.
Nearly two years later, many high street lenders are failing to use the exemption for fear of falling foul of the regulator. This has forced many wealthy clients to turn to private banks for a mortgage, meaning they can't access the very best deals in the market.
“The exemption is out there and available, yet the vast majority of lenders are choosing not to use it,” said mortgage expert Mark Harris. “I think it’s fear of getting on the regulator’s radar for doing something out of the ordinary.”