The 2021 Mortgage Rate Predictions

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Will Mortgage Interest Rates Stay The Same In 2021?

Everyone is wondering what’ll happen to the economy, specifically mortgage rates, after the worldwide pandemic. So, we’re here to show you 2021’s mortgage rate predictions or forecasts.

Experts are predicting some interesting numbers for the 2021 real estate market.

Property Prices Will Rise

Property listing across the UK had grown by 13.3% in 2020. The median existing-home prices for all types of homes was £310,800 in November. That’s 14.6% more than the previous year. And no region was left out. According to experts in the property market, these processes will continue to rise.

Property Sales Growth Will Be the Biggest since the 1980s

Even as property prices increase, property sales won’t be so heavily affected by it. According to expert economists, property sales will grow more than ever since the 1980s. Thanks to the many millennials now buying property and Generation Z, the property market will grow immensely in 2021.

Mortgages Rate Will Increase Slightly

Equity release mortgage rates were at an all-time low at the end of 2020/beginning of 2021, some even as low as 2.25%. However, homeowners can expect a slight increase in these rates. The low-interest rate we saw last year is the lowest it’ll ever get, according to experts.

Let me tell you something:

If you still want a mortgage, do it as soon as possible this year to get the lowest interest rate you’ll ever get. You can expect an increase of less than 1% throughout the year. The prediction for rates is 3.2% at the end of 2021.

There Will Be Less Refinancing

The refinance boom that occurred last year was due to low interest rates on equity release. The standard 30-year fixed mortgage rate had a record low 16 times during 2020.

Simply put:

Some equity release providers documented a whopping 180% increase in product sales. To quell this enormous volume, some providers had to increase their rates. To give you another example, The Mortgage Bankers Association’s refinance stats saw a massive 100% increase in 2020 as well.

Now:

Purchases are predicted to increase by 8.5% or £1.54 trillion in 2021. Further predictions are that the number will decrease in 2022 to about £946 billion.

There’s more!

No one would’ve thought that rates lower than 3% would or could be a bad thing, right? But, like everything, this is also relative. As we’ve mentioned, in early 2021, rates were set at around 2.5% and rose to 2.8% as the year went on. Rates couldn’t keep dropping lower and lower. It had to stop somewhere.

Let’s have a look at a forecast graph1:

Mortgage rates forecast for the next 90 days through Spring 2021. Mortgage rates are projected to rise gradually.

Now, let’s consider what impact the pandemic will continue having on mortgage rates.

COVID-19, Vaccines VS Increased Rates

Of course, the coronavirus has had an impact on mortgage rates. Experts are saying that the vaccine will have good and bad outcomes when it comes to rates. On the positive side, her immunity will happen as 70-90% of the population gets vaccinated, and case counts will start dropping. On the negative side, as people start traveling again and a year’s worth of pent-up demand explodes, inflation will reach extreme levels.

Now:

Mortgage rates are directly connected to inflation: they’re inflation-sensitive. This means that they’ll lose value in high inflation. But how does this work, you may ask?

Simply put:

When investors shy away from mortgage-backed securities and get drawn back in due to higher and higher rates, the higher rate is passed onto mortgagers. Some experts think that rates can surpass 3% or even higher percentages. Now is likely the best it’s going to get for a long time.

Just think about it.

Rewind to the year 2013. It was the worst when it comes to equity release mortgage rates. 30-year rates went from a reasonable 3.35% at the time to 4.46% in just eight weeks! This equated to roughly £200/month for a £300 000 mortgage.

Now:

As markets are always forward-facing, rates could skyrocket if providers decide to tip their hands about tapering stimulus. In 2020-2021 we saw the same pattern as in 2012-2013, where rates were meagre and then drastically increased. Will rates keep rising?

It depends.

If providers don’t decide to reduce mortgage bond purchases, we might maintain the current rates. But who’s to say?

Possible Mortgage Strategies for 2021

Now’s the perfect time to cancel mortgage insurance—the value of property increases drastically in 2020. As 2021 goes on, homeowners can have the perks of property prices rising combined with the current low rates. Refinancing out of mortgage insurance is super effective now more than ever.

What does this mean for you?

Generally, property buyers don’t put down 20%, but more towards the 6% mark. Therefore, first-time property buyers will pay some sort of insurance on their mortgage.

You can also choose to use the equity that’s locked up in your property while the mortgage rates are so low. It doesn’t have to be risky. If you do it properly, releasing equity from your home can be very rewarding.

Better yet:

You don’t have to use that cash for debt repayments. Using equity release cash you can also fix up your house and make your home décor dreams come true! Especially now if you’re one of those people who need to work from home.

Simply put:

Thanks to COVID, you now have to make do with your unequipped space at home and turn it into an office. However, you can continuously tap into your home’s value to get some extra cash and remaster your office space. 

Take a look at an example:

It’s normal to keep roughly 20% of your home’s equity after the refinance. (Even better rates are available to you if you save 25% of the equity.) so, a normal cash-out is worth it if you have around 35-40% of your home’s equity with a property value of £250 000 plus.

Unfortunately, we have to mention the pandemic again because, throughout history, pandemics have affected economies worldwide. And, as you know, COVID-19 has affected us all. We’ve spoken briefly about it, but let’s dive in deeper.

Coronavirus Vaccines Will Increase Rates In 2021

As predictions go, this one isn’t the greatest. However, it’s not the worst. Some experts predict rates to be a low 3.1% at the end of 2021 again, but we’ll have to wait and see what happens.

Listen up.

Vaccines are the main concern here. For example, those who’ve been vaccinated will be allowed to travel all over the world. This will most likely cause a surge in economic activity due to tourism and importation/exportation working in full swing again. This brings in inflation concerns.

There’s more!

The vaccination will cause more people to look for new homes, and buying new homes will become more prominent. Therefore, the property market will significantly influence mortgage rates and herd immunity thanks to the vaccines.

Experts are also predicting refinancing to decrease in 2021 while loan rates rise slightly to discourage refinancing. The rates will remain low so that more people will feel comfortable buying property, even during a pandemic and all the uncertainty. And, let’s say equity rates go very high to stop refinancing. They’ll still be attractive enough to keep property affordable.

Other Sources’ Predictions

Rates could stay above 3% in 2021, some economists predict. However, it won’t be above 3.1% – 3.3%, they say. So far, their predictions have been correct up until March 2021. 

Let’s have a visual2:

You have to remember it. These rates are still meagre compared to the beginning of 2020. In simpler terms, rates are suspected of remaining low or around the 3% range.

Does The Bank Of England Affect Rates?

They don’t set these rates directly. However, they set the overall rate environment. But let’s face it, even though the increase in rates isn’t so much percentage-wise, the amount of money you’ll have to pay more every month will add up to hundreds of pounds!

Further predictions are that the rates will rise as far as 3.6% in the year 2022. Higher rates have been known to decrease buying power, especially now that property price appreciation is on the way to increase this year.

Let’s look at the numbers:

Loan amount Mortgage rateMonthly paymentTotal interest paid
£500 0002.675%£2 020.08£227 229.08
£500 0003.1%£2 135.08£268 629.52
£500 0003.3%£2 189.78£288 319.39

Let’s zoom in on one type of mortgage:

Lifetime Mortgage Rates

When it comes to lifetime mortgage, which is the most common type nowadays, you don’t have to make any repayments if you don’t want to. The only repayment you need to make is at the end of the loan period.

Now:

If, however, you’d like to make repayments before the end of the loan period and decrease the loan amount, the interest that would inevitably build up during the loan won’t be so high as it would without making extra repayments.

But, if that’s not you…

Making the repayment only at the end of the loan term is also better now that the interest rates are low. The interest build-up will be less than in previous years, where interest rates used to be more than 5%.

Is Mortgaging A Good Way to Get Extra Cash?

Compared to other competitors, equity release is becoming a great one! Traditional borrowing isn’t so high on the charts anymore because equity release has taken the lead as the UK’s mainstream financial solution.

Simply put…

More than 400 equity release products were sold in January 2020 alone, according to ERC. So, there are many options to choose from when you’re 55 years or older, and you need some extra cash by releasing equity from your property or home.

Let me mention something else…

When it comes to interest compounding, you’ll need to look into a few other features before you decide on an equity release. Features such as:

  1. Downsizing protection

Meaning, your loan can be repaid without early repayment charges. This usually happens when you want to sell your current property and move to another in the future, for example.

  1. Interest repayment

Look into your provider and plan: some allow you to make once-off interest payments at the end of your loan period, some allow early repayments or part-interest repayments.

  1. Loan repayments

The ERC has around 50% products that allow you to make partial repayments on your loan without charging early repayment charges. This is great for decreasing the total end cost.

  1. Drawdown reserve

Drawdown lifetime mortgages allow you to take out an initial amount of cash. You will also be allowed to make an account reserve of more money to draw down in the future. Better yet…

You won’t be charged interest on that reserve until you take that money out. This is great for managing compounding or accruing interest.

So, what’s next?

Well, to understand what a lifetime mortgage is, it’s advised that you chat with your trusted financial adviser about it to get the full scope. Make sure it’s a fully-qualified equity release adviser who knows the current interest rates, house prices and borrowing costs.

Especially now, with the 2021 predictions, it’s clear that this is the way to go and that the time is now.

Another thing.

Don’t Release More Than You Need!

The rates you’ll pay on the mortgage will increase the closer you get to your maximum borrowing limit.

Now:

Currently, the highest rates for the maximum is 6%. But, if you take out 75% of your maximum, your rates will most likely be 3% or less. And then, if you take out 60%, you’ll most likely qualify for 2.24%!

But what about regular mortgage rates?

Well, even though standard mortgage rates are between 1-2%, equity release rates are fixed for life, making it a better option in the long run.

Releasing Money Only When You Need It

As you probably know, drawdown plans and income plans let you draw down against a pre-agreed facility. Drawdowns allow you to choose income plans to ask that you set your income amount from the get-go.

Simply put…

Even though they’re more rigid in a way, there’s more certainty attached to income plans because you set the rate at the beginning of the agreement. On the other hand, drawdown rates are only applied when you release money. Plus, each drawdown comes with another application.

Common Questions

Will Mortgage Rates Go Down In 2021?
Will Interest Rates Be Low In 2021?
Will Rates Go Back Up?
Will Rates Keep Dropping?

In Conclusion

Let’s say these predictions come true: property prices rising, slightly higher interest rates etc., this means that those who still want or need to take out a mortgage should do so as soon as possible to secure the lowest possible rates and save the most money. The longer you wait, the more money you’ll end up losing.

The time is now! Don’t hesitate. Equity release mortgaging is a safe and wise option for you at this time in our era. If you still have some questions, don’t hesitate to call or email us at any time.

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