Time to snatch a bargain?
After the chaos in the global financial markets over the past week, borrowers have been urged to snap up attractive mortgage deals while they last.
The sudden collapse of Lehman Brothers, the fire-sale of Merrill Lynch, the bailout of AIG by the Federal Reserve and the prospect of an emergency takeover of the UK lender HBOS have all raised fears that home loans will again dry up and the cost of those available will rocket.
The average cost of a two-year fixed-rate mortgage deal has been in decline for two months, dropping from 7.08 per cent in July to 6.39 per cent this month. The US Government-backed rescue of the mortgage giants Fannie Mae and Freddie Mac less than a fortnight ago added to confidence that an easing of the credit crunch was under way.
But the shock disintegration of Lehman, the US investment bank, and talks of an emergency takeover of HBOS by Lloyds TSB in particular, will worsen the mortgage drought in the UK as local lenders wait to see the extent of their losses.
Confidence in the financial markets has once again been shaken and if this continues, with more banking names dragged into it, this will discourage lenders from lending to one another, pushing up the cost of borrowing in the money markets. This could then lead to higher mortgage rates.
However, it can take up to two weeks for the higher cost of bank borrowing to filter through to customers. The delay in the fallout reaching the mortgage markets comes from UK lenders waiting to see if the “initial reaction to the news was the right one”.
The time is right, therefore, for borrowers to take advantage of the banks indecision about the markets direction to snap up a bargain before the cost of borrowing rises sharply again.
