Record low mortgage rates provide excellent refinancing opportunities for investors to extract greater value out of existing properties and greater monthly net cash flows.
- The BoE has reported that a range of household borrowing costs have fallen to record lows (including record low mortgage rates).
- The average rate on a 2-year 75% LTV fixed mortgage fell by 7bp MoM in January to a record low of 2.01%, and is down by 59bp since June-2014. This is the most commonly used benchmark. This reading extends the market declines since mid 2012, with the average rate down by 173bp.
- The average rate on a high LTV (90%) loan fell by 10bp MoM in January to 3.79%, and is down by 71bp since mid-14. This rate is also is at a record low (comparisons with the period before 2008 are based on a 95% LTV), as is the rate on a 5-year fixed mortgage with 75% LTV (3.09%, down 12bp MoM).
- Also to boot, unsecured rates have also fallen, with the average rate on a £10k personal loan down by 14bp MoM in January to a record low of 4.79%. (Maybe something to take advantage of for those particularly keen on leverage to stump up a deposit on a flat).
So what do such low mortgage rates mean?
- The low mortgage rates are expected to provide further stimulus to the buyers market. The net balance of people who intend to buy a house in the next 12 months rose sharply in January to the highest level since 2003
- Greater numbers of remortgage applications will be made to take advantage of the low borrowing cost levels to extract 1) greater monthly net cash flows, and 2) greater value out of the existing properties. The latter can be achieved by benefiting from a lower LTV (thus even lower mortgage interest rate) or remain at a competitive mortgage interest rate/LTV and extract cash for those seeking to empire-build with additional property purchases.
- We believe that many will also be encouraged to apply for remortgages in favour of outright sales in the open market given the fear of not being able to extract the greatest sales value in a buyers market due to lingering sentiment of a real estate bubble in London. Thus, less housing stock will come on line, which will serve to raise competition for the limited stock further and inevitably either maintain or further increase house prices.
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