A new report from the NatWest Bank nips in the bud any speculation that rising inflation may end the current cheap mortgage deals being snapped up by many house buyers.
The bank says a number of high profile mortgage products have been withdrawn in recent weeks “leading to speculation that the era of ultra-cheap deals may be coming to an end even though base rate remains at a record low.”
The NatWest concedes that while this is a consequence of rising inflation, which has fed through to an increase in the longer-term rates used by lenders to finance their mortgage books, it is unlikely to hit domestic borrowers in the short term.
“While data from the Bank of England do show that the average quoted rate for some fixed-terms crept up in December, they are still significantly lower than they were just 12 months ago” says the NatWest report.
It says the average mortgage rate for new borrowers towards the end of 2016 was 2.17 per cent while the average mortgage rate for outstanding mortgages a year earlier was half a per cent higher at 2.68 per cent.
“Most existing borrowers will therefore still be able to remortgage at a lower rate. Indeed, those coming off two year fixes in the next few months are likely to find deals a whole per cent lower than their existing rate” says the bank.
However, the bank has less good news for buy to let borrowers.
It repeats the warnings of many others that new rules set by the Prudential Regulation Authority – requiring landlord borrowers to pass stress tests for notional interest rates of 5.5 per cent – are likely to lead to the rejection of many applications.
“This will in many cases require a day one interest cover well in excess of the traditional 1.25 times that has been the benchmark in the past. This affordability test will also have to take account of changes to mortgage interest tax relief, under which higher rate tax payers will not receive full relief after April 5 this year” the NatWest warns.