Mortgage rates for new borrowers continue to increase

"As the last month in the current Quarterly Inflation Report cycle and, more importantly, with the remaining funds already agreed for the Quantitative Easing programme scheduled to be invested over the next month, April was always going to be a ‘no change’ month for the MPC.

"With this week’s economic statistics on the services, manufacturing and construction industries being more upbeat than expected, coupled with less optimism on the likelihood of inflation falling below 2% by the end of this year in view of the recent oil price rise, expectations of a further dose of QE next month have diminished. However, the initial estimate of Q1 GDP will no doubt be a major influence at next month’s MPC meeting.

"On the negative front the failure of Spain’s bond auction on Tuesday was a timely reminder that the euro zone banking crisis is far from over, with the ultimate solution merely delayed by the 1 trillion euros pumped into the system by the ECB."

What Does This Mean for the Mortgage Market?

"Over the last month mortgage rates for new borrowers have continued to rise and a couple of medium-sized lenders have increased their SVR. There has been some modest activity in the new issue bond markets with Nationwide, among others, raising funds. However, with the euro zone crisis far from over, access of UK lenders to funding in the wholesale markets will continue to be restrained and there is no sign of this situation changing any time soon.

"Until wholesale funding becomes more freely available, demand for mortgages will continue to exceed supply and so the current trend of steadily rising rates has further to go as lenders re-price upwards or pull products to avoid attracting more business than they can process efficiently, or can fund. Couple this with a substantial increase in the number of mortgage prisoners as a result of the lenders’ changes to interest only policy over the last couple of months and it is clear that conditions are unlikely to improve for mortgage borrowers in the next few months.   

"The recent SVR hikes will be a wakeup call to some borrowers whose rate is increasing or who are sitting on an uncompetitive rate, especially if they have plenty of equity.

"For these borrowers acting quickly to review their situation should be a priority as the spread between Bank Rate / swap rates and mortgage rates continues to widen.

"With such large variations now in lenders’ criteria it is more important than ever to consider not only which lender has the best deal but which lenders are actually likely to produce a mortgage offer rather than allowing their computer to say no. Good independent mortgage advice is invaluable is sorting out the lender wheat from the chaff."

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