The Bank of England (BoE) has revealed, that banks and building societies expect mortgage rates to fall even further within the next few months.
In the recent credit conditions survey conducted by the Bank, it was revealed that borrowing rates for homeowners have fallen in the first quarter of 2013; the third consecutive quarter rates have dropped.
Several banks and building societies are continuing to predict further falls in mortgage rates and are expecting a significant change within the next quarter; this comes after new government measures were unveiled in the Budget.
One of the reasons for falling rates is increased competition between mortgage lenders; however various government schemes have also had an impact. In the recent Budget, the government announced the Help to Buy scheme, which allows buyers to purchase a property with a 5% deposit. To make this possible, the government will give an equity loan of up to 20% of the value of the property; thus giving lenders more incentive to offer cheaper mortgages.
You can read more about this scheme in our Q&A: Everything you need to know about the Help to Buy scheme, click here to read the article now
Funding for Lending Scheme
The Funding for Lending Scheme (FLS) is another reason why mortgage rates are likely to fall further during 2013. The FLS was launched by the government in August last year and offers banks and building solidities a cheaper source of finance, but only if they then lend it on to individuals and smaller establishments.
The scheme is designed to make borrowing more accessible and whilst it has certainly pushed mortgage interest rates lower, with several banks and building societies announcing record low deals, there is some debate as to whether it is opening up the mortgage market to a wider range of potential borrowers.
Although the FLS is benefiting some borrowers, the side effects of the scheme are being seen in the savings market. Banks and building societies, who have signed up to the scheme, are no longer so eager to attract savers and are able to offer lower interest rates on savings accounts, which means that potential savers stand to loose money year on year in real terms, as inflation remains above the best buy savings interest rates.
Commenting on the Bank’s report Howard Archer, Chief UK and European Economist for IHS Global Insight, said: “The survey adds to the pressure on the Bank of England and the Government to come up with further measures aimed at boosting bank lending to businesses, with the focus particularly on easing credit conditions for smaller companies. A strong possibility is that the Funding for Lending scheme will be adjusted to specifically favour banks that increase their lending to smaller companies.”
Other experts also believe that the scheme will be amended to further aid small businesses, and again broaden the horizon for individuals who wish to purchase properties.