March 5, 2016
Fixed Rate Mortgages Facing Extinction?
While the interest rates have increased recently and apparently will continue to increase people shortly, have been taking shelter in fixed rate mortgages. This is being halted due to the withdrawal of that option by many banking institutions. After the latest interest rate increase banks appear to be doing away with that option for the mean time, if not permanently. This is likely to have major ramifications for the housing market as it one of the main aspects that have allowed first time buyers to enter the market. Without the knowledge that interest rates aren’t going to cause your repayment amounts to rocket, it can be far too risky to enter the market now.
The effect on the housing market is possibly not going to be felt for a while, but it will mount up, and a drop in property prices is going to be felt throughout the country. The loss of the fixed rate mortgage option is going to lower the number of potential buyers drastically. The increased interest rates are also likely to lead to some homes being repossessed and placed on the market by lenders. This will lead to a fall in the value until a point where a natural equilibrium is reached. The changes may not be apparent at the moment, but the inflation of property prices should be slowing in the wake of the interest rate increases.
The decrease in property value means that people who have mortgages currently will not be able to leverage the difference in value when applying for a second mortgage. This could exacerbate an already difficult situation for people who are in financial difficulty and who were planning on utilising the extra value to gain a loan. All the factors are pointing to a huge slowdown in the property market and after a period a market reversal. Currently, it’s very much a seller’s market, but with the financial clamp being applied it is likely that more and properties will be placed on the market to cover debts.
There are many people who helped to inflate the property market by taking mortgages out on their homes to buy a property to let it. For those people who were contemplating joining, this group are likely to be dissuaded by the increase in interest rates which cannot be avoided anymore. Many potential buyers were largely inattentive to the increases since they believed they could make use of a fixed rate option to avoid the effects. As the mad rush of sellers begins to dry up due to a lack of suitable loans those how have invested in property are likely to feel the pinch. There are still going to be fixed rate mortgages available, but far fewer people may be able to access them.