Mortgage rates to rise greatly in March but loan size will grow, economist predicts

Mortgage rates to increase sharply in March but loan size will grow, economist anticipates – Home mortgage Solutions

Home mortgage rates to increase sharply in March but loan size will grow, economist predicts by: Lana Clements Home mortgage rates will leap in spring 2018, following the increase to the Bank of England Base Rate and completion of the Term Funding Scheme (TFS), however homebuyers will still take on larger loans, a popular economic expert has forecast.The typical five-year fixed-rate loan will increase by 50 basis points over the next six months, to around 2.4 %, from current levels of 1.9 %, inning accordance with Samuel Tombs, primary UK economic expert at Pantheon Macroeconomics.But he forecasted that longer home loan terms will imply customers will be able to take on bigger debts.Funding. costs are set to increase after the Bank of England today raised the base rate from 0.25 % to 0.5 %. And next year the TFS plan will end, which currently enables banks to protect funding for a four-year duration at bank rate– on the proviso lending is increased.The scheme is around 100 basis points cheaper than funding from depositors or wholesale markets, inning accordance with Tombs.Rising expenses will be handed down The economist argues that loan providers have little scope to absorb an increase in financing expenses, amidst the current spread in between the

five-year home mortgage rate and the five-year LIBOR swap rate, indicating they will have to pass it on to customers.But the amounts handed to borrowers will not be downsized since providing terms will instead continue to extend, he argued. Tombs believes the typical home loan term could rise by another 2 years. In turn,this will hold up house prices in 2018. Loaning over 30 years and longer now makes up more than third of loaning– from less than a 5th in 2010. Writing in a research note this week, Tombs said:” The average five-year fixed-rate home loan rate will rise by around 50bp over the next six months.”Mortgage terms, however, will continue to lengthen, ensuring rates stabilise, rather than fall, in 2018.

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