Time to Hit the Panic Button?

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Duncan Farmer looks at the effects of recent stock market falls.

The sudden and dramatic falls in world stock markets and the strong hints by Mark Carney, the governor of the Bank of England, that interest rates would be rising soon this year and again next year has created some panic among investors and borrowers.

However, Ray Boulger, a mortgage market commentator with John Charcol the broker, says that we need not worry. “Despite the sharp rise in gilt yields and swap rates over the last month, market-wide competition among lenders has resulted in several lenders cutting rates and with longer term interest rates now falling back, this will reduce any pressure to increase the cost of fixed rate mortgages,” he says.

“Should the equity market route go too far, there is a potential risk of investors getting nervous enough to pull capital out of the market. However, we are not close to that happening and even if it were to occur, central banks would no doubt pump liquidity into the system.”

His point on competition is well made. A look at the best-buy tables has two-year fixed rate mortgages available from Sainsbury’s Bank at 1.3 per cent, Tesco at 2.04 per cent and Santander at 1.69 per cent for borrowers with a 25 per cent deposit. The Tesco and Santander loans do not even come with arrangement fees, so look particularly attractive and if you have a 40 per cent deposit Santander will offer you 1.09 per cent.

Bearing in mind that most experts believe the Bank of England base rate will rise two or possibly three times within the next year, the savings could be huge. Add to that the fact that anyone coming off a fixed rate soon would almost certainly be paying their lender’s standard variable rate – Halifax is charging 3.99 percent – and as its name suggests the rate you pay will vary in line the base rate. The difference on a £400,000 repayment loan between the low Santander rate and the Halifax standard-variable rate is about £600 a month.



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