One of the main questions I am being asked at the moment is around low interest rates.
Right now, Banks are competing with one another to give clients those headline rates, particularly under 1%.
It hits the news, and it attracts the customers. Money always does!
But how and why are they so low? Will they stay low? And why has this happened?!
One of the surprising facts that a lot of people don’t realise is that low interest rates actually signal a weaker economy. The weaker the economy, the lower the interest rates tend to be.
The UK interest rates are heavily influenced by the U.S economy. One of the most important factors influencing the economy in general, and interest rates specifically, is the monetary policy by the Federal Reserve Bank. Generally, increases in their money supply allows for lower interest rates. And right now, there are a lot of foreign investors purchasing mortgage-backed securities from the U.S, which means continued low interest rates for us.
But if low interest rates indicate a weaker economy, why is our economy considered to be weaker right now?
This is still largely due to the pandemic. And there is lots of concern around the new variant of Covid-19. The uncertainty is still a huge influence on the market. People don’t know yet what the impact of this will be…
I don’t necessarily think there is a link between the stamp duty holiday and interest rates – I think the stamp duty created an influx of activity – no one felt this more than conveyancers in June; but this has settled now. Summer is always quieter in our market.
I personally don’t think the rates will continue to get lower. I think they may settle and stay the same for a while, and this makes our space a very competitive place to be. Even remortgage customers should consider their options right now!
Clients need need to be aware that a “headline rate” is not always the cheapest product – a good broker will take the fees into account too to show you the cheapest product overall across your fixed term period.
Low interest rates is a HUGE positive, so we should embrace it. 😄
If you’d like to discuss the options available to you, contact your adviser today.
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Thank you for reading.
Sarah Tucker, founder of The Mortgage
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