Mortgage interest rates are now at their lowest level for nine years, according to the latest figures from the Bank of England.
There was a major rise in mortgage lending through to the end of 2015, which showed little signs of slowing even in December, which is a traditionally quieter month.
In the final month of the year, more than £18 billion in mortgages was lent to UK homebuyers by banks and building societies, which is a significant increase on the £14.7 billion loaned in December 2014 and only a marginal decrease on the previous month.
The average interest rate on an outstanding mortgage has fallen to 2.99 per cent, which is the first time it has fallen below three per cent since the Bank of England began measuring the rate, and has been complemented by a rise in mortgage repayments, which has reduced the country’s total mortgage debt.
A rise in interest rates had been expected due to encouraging employment figures and a similar increase from the US Federal Reserve, but Bank of England governor Mark Carney has now suggested that rates may not rise until 2017 at the earliest.
It will therefore remain at 0.5 per cent for the foreseeable future, with various reasons at play to explain the lack of change, according to the Mortgage Advice Bureau (MAB).
“There are numerous factors but one of the main ones is the current price of oil as - following last year’s trends - it has continued to slump, meaning that it is costing you less to do things like heat homes, drive cars or buy goods, and all of this means that inflation sits at just 0.2 per cent, way below the government’s, admittedly loose target, of two per cent. And there lies the reason for the opinion shift – inflation,” the MAB explained.
After the UK fell into deflation, the obvious solution was to increase rates to encourage people to spend again, but this was hampered by international factors such as gold prices in China, oil prices in Russia, and the ongoing Eurozone debt crisis, meaning that - at the moment - increasing rates is not an option.
The MAB advises: “For the time being, mortgage rates will continue to remain at their record lows, and if you are considering remortgaging or getting a mortgage, now could be the time to do it before the economic outlook changes again.”
This trend has been reflected in market activity, particularly in the usually quiet December, with a continued appetite for new mortgages indicating that homeowners are eager to capitalise on market competition and lock into lower rates, while they are still available - although how long this will be the case is unknown.