David Prosser: Borrowers have never had it so good


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Outlook While contagion from the eurozone may yet do even more damage to Britain's faltering economic recovery, many mortgage borrowers have reason to be thankful for the events of the past few weeks. As a result of the crisis, fixed-rate mortgages have suddenly got substantially cheaper.

It's a misconception that all mortgage products are priced with reference to the Bank of England base rate. For fixed rates, what matters is what's happening to swap rates, which rise and fall in line with gilt yields. And gilt yields have never been lower.

In part, that's because the markets do not now anticipate an interest-rate rise in the UK until well into 2012. But what's really driven gilt yields down over the past few weeks has been that UK government debt, compared with the bonds of most eurozone members, is now considered a safe haven. So much so that 10-year gilt yields are now at levels that have never been seen before.

Lenders have been repricing their fixed-rate products accordingly, says Ray Boulger of John Charcol, one of Britain's biggest mortgage brokers. He is currently advising many clients to choose fixed rates over variable-rate deals, so competitive have the best products become, a complete turnaround on the broker's position only a month ago.

The question is how long the window of opportunity for fixed mortgage rates will remain open. On the one hand, it is difficult to imagine the eurozone crisis will not continue to rumble on for the rest of the year, which suggests gilt yields will remain low as the flight-to-safety effect continues. However, in the event of a serious escalation in the crisis, all bets are off.

The danger is that in a full-blown flare-up, lenders, which have been restoring mortgage availability since the credit crunch, put the shutters up once again. In which case, many borrowers might find themselves in the frustrating position of seeing very cheaply priced mortgage deals offered that they are actually unable to get.