2019 mortgage rates predictions will be something of a wait and see period as many people are unsure how the economy will perform after the vote. After a bruising for Remain in the UK, polls have shown a tightening in the forecast for Remain. While there are no clear signs of an impending recession, there are warning signs to look out for.
Inflation is expected to remain on a low level in the run up to the end of the year. This means that even if the Bank of England does raise interest rates, it will only be a mild increase. However, inflation may pick up quite quickly afterwards, bringing it closer to the Bank of England’s 2% target. As the UK debates the options for remaining in the European Union, it will be interesting to watch how low mortgage rates remain during the process. With Remain leading the charge, there may not be very much resistance to pursuing a soft landing with the remaining nations.
Inflation is forecast to remain low in the run up to the end of the next decade. This means that mortgage rates will remain on a fairly consistent downward path, which makes buying a house that much easier. The low rate environment will help to stimulate the economy, especially if additional infrastructure projects are approved. The Housing Minister, Nick Clegg, has also announced additional measures to help struggling homeowners. The measures include a guarantee to scrap the hated bedroom tax, and a commitment to free home care for anyone aged 50 or over who is resident in the UK.
A key feature of any mortgage rates predictions is the amount of money that will be saved on the monthly payment. If interest rates were to rise suddenly, the monthly payment could rise by several thousand pounds. However, the length of time until interest rates start to rise again will take this figure over a decade or longer to come into the picture. If the forecasted figures prove correct, then a home owner could potentially save hundreds of pounds a month on their mortgage. This, in turn, will help them to meet the extra costs such as food, council tax and energy bills.
There is another interesting piece of information to be found in the charts published by the Office for Budget Responsibility. The OBR has highlighted two major factors which they believe will affect the outlook for the budget over the next five years. They are that there will be a large hit to employment as the economy recovers from the recession, and that there will be a hit to consumer spending as prices increase. Chief economists have predicted that both of these factors will act in tandem to offset the effects of inflation, leaving the government with little room to pursue a recovery in the housing market.
In addition to the cuts in homebuyer’s equity, the OBR has warned that there may be further falls in the overall UK consumer inflation. As we have seen, the significant rise in prices has made up for weak wage growth, leaving many homeowners struggling to keep up with the increased payments. However, with higher inflation expected in the future, it is likely that the chief economic problem facing the UK now, will become increasingly difficult to solve over the coming years. In short, borrowers are likely to be hit harder by rising mortgage rates in the coming months, rather than cheaper rates in recent years.
The OBR also confirmed that there is little scope for further increases in rates, with research suggesting that lenders may be waiting until late in the year to start raising rates. With inflation set to rise above 3%, it would be a surprise if any further hikes are introduced before the end of the year. If mortgage rates were to rise in the immediate future, it is likely that homebuyers will feel the pinch more quickly and may consequently purchase homes sooner than later, resulting in higher monthly payments for the borrower. Although the chief economic problem facing the UK now is the slowing down of the economy, and the impact this will have on household finances, it is likely that homebuyers will suffer from higher mortgage rates for at least the coming years.
Homebuyers can prevent further hikes in rates by taking advantage of one of the following two scenarios. Either borrow more money than you require, or reduce your monthly expenditure. With low mortgage rates, borrowers should consider borrowing more money to cover living costs, increasing the borrowing power built up over time. Alternatively, borrowers should look to reduce their current spending levels, so that more of their monthly disposable income is set aside for the mortgage. The easiest way to do this is to increase saving; although this should not be done overnight as it is likely to take a few years for savings to build up to sufficient levels to enable borrowers to enjoy competitive mortgage rates once again.