The cheapest mortgages ever? Look before you leap through the housing ‘window’

Enormous borrowing has become so ordinary that we no longer find it terrifying

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Whoop whoop. Now, apparently, is the best time to buy a home. Or, at least, the Best Time Ever To Take Out A Mortgage, which for many of us, is the same thing. Why? Because mortgage rates are at rock bottom, and have almost halved in the past year. Because banks are relaxing their strictures on mortgage applications. And because house prices are plateauing across the board, even in prime central London. So let us all wade back into the market. What fun!

Well, really? Is it really a good time to listen to the likes of Brian Murphy, head of lending at the Mortgage Advice Bureau, who says, with admirable metaphorical elan, “the next six months are shaping up to be the best-ever window to secure a low-interest rate if you are looking to buy or remortgage”. What he then goes on to say is even more astounding: “Today’s prices have never been bettered in modern times, and given that a bank rate rise is inevitable … it’s unlikely they will be surpassed in the years ahead.”

Quite apart from talking about a mortgage in the terminology of something you casually buy off the shelf, it might be useful to take note of the other point in Murphy’s call to arms.  Namely “that a bank rate rise is inevitable”. Murphy is pointing it out to hurry people up. I think it might be helpful to point it out to slow people down.

Can we please start using a bit of experience over hope, not the other way round? Even if the base rate rises by a measly 1 per cent, that could throw thousands of people into financial disarray as they see their repayments shoot up.  Mortgage rates may be at record lows. House prices, however, are at record highs, so borrowing is by necessity going to be terrifyingly high. The Bank of England only needs to turn up the dial a tiny amount and many of us will be imperilled because our borrowing is so enormous. What will happen then? Forced sales, the collapse of the market, negative equity and the rest of the package, or as Murphy might call it, “the window” of misery. 

Of course, enormous borrowing has become so ordinary, so everyday that we no longer find it in itself terrifying. Borrowing is just what you do, it’s what everyone does, and I am no exception to the rule. My dear parents, whose financial know-how was honed in a different era, have palpitations to see how casually I and my family exist surrounded by never-ending debt. The only consolation is that everyone else seems to be doing it too. House improvements? New car? No money? No problem. Just look to the cash cow which is your house, and remortgage. Frankly, it’s what plenty of people are doing in order to pay the January tax bill. Well, it is a lot cheaper – at the moment – than the interest rates charged on your credit card or an unsecured bank loan. At the moment.

 

The debt-crazy days of the 1990s, when people (myself included) were encouraged to trade debt via 0 per cent interest transfers, have not gone away, oh no. They have just changed their clothes. Debt has subtly shifted from a world which frowns upon plastic borrowing yet welcomes borrowing on bricks and mortar. Indeed, it’s much easier because the capital value is reassuringly big and you can just chip away at the interest only, because who cares about the lump sum? It is like student loans, only half of which are apparently ever actually repaid. Student loans have now become a figment of the imagination, a thing which doesn’t really matter. It’s the same with debt on our property. Our houses are all worth so much now, so who cares, seems to be the general thinking.

Except when you are over – say 40 – the spectre of interest rates threatening double figures is within living memory. Even half that amount would bring us all down. Of course nobody wants to recall those days, and “experts” such as Murphy certainly don’t want to remind us about them either. He briefly mentions the “base rate rise”, probably because he has got to, but then quickly moves on to tempt us with the notion of “attractive new deals” and “strong appetite for growth”. Great, where’s the nearest bank so I can take advantage of the “best-ever window”?

Of course, financial advisers will certainly do very well out of this news, what with all these customers anxious to leap through the “window”. Estate agents, and the Government with its Help To Buy scheme, will profit too. Somebody called Andrew Montlake, who is (of course) a mortgage broker, really goes for gold by stating that “the next few months could well prove to be the best time to lock into low rates which may not be seen again for a generation”.

You can sense the pressure this will put upon young people who have yet to step on to the dreaded housing ladder. Indeed, they are probably already rushing to the nearest branch of Coreco, where Montlake works. Yet will the likes of Montlake and Murphy be around to pick up the pieces when people, hopelessly in debt, are forced to sell their houses thanks to impossible repayment demands due to increased lending rates?

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