A hung parliament could cost you thousands!

by Christina Jordan on 14 March 2010  |  10 comments
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Why your vote could affect your mortgage rate

Last week saw the Bank of England hold the Base Rate at its record low of 0.5% for the 12th month in a row.

It came as no surprise, of course, as the Bank’s Inflation Report in February had made it pretty clear that high inflation in the short-term would not be enough for it to increase rates. It actually forecasts that the Consumer Prices Index will plummet below its 2% target by the end of this year.

The decision to maintain means that borrowers on a variable mortgage rate -- like a tracker or standard variable rate -- have been given another stay of execution. We all know rates will rise at some point but the big question is when.

Keep it on the down low

Looking at the picture on purely financial terms I’d probably have to side with a tracker rate if my priority was minimising my repayments over the next couple of years (for the record payment security is my priority and I am actually paying over the odds on a fix).

If you have a decent deposit of around 25% you can get hold of some super-competitive variable deals. Here are five of the best cheap and cheerful trackers (up to 75% LTV):

Throwing politics into the mix

So what does politics have to do with all this?

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It wasn’t just the media that thought a Tory victory was inevitable -- so did the money markets. They had factored in a Tory government that would take strong action on reducing the UK deficit by cutting public spending. This would help maintain the country’s AAA credit rating.

But now election polls are all over the place. We might be facing the prospect of a slim Tory lead or Labour staying in power with a minority Government, or even something completely different.

These new polls have shocked the money markets as a hung parliament has massive implications on the UK budget deficit at a time when they are already losing faith in UK plc -- Labour doesn’t want to slam the brake on public spending while the recovery is so fragile, and who knows what a hung parliament could achieve?

Sterling and gilt prices plummeted at the start of the month (indeed Sterling dropped this week again following gloomy trade deficit figures) and could fall further.

The greater the chance of a hung parliament in the polls, the more the markets will worry about the deficit. And the whole point of this is that it low gilt prices (and therefore high gilt yields) could feed through into higher fixed rate mortgages. Gilt yields affect swap rates and swap rates affect fixed rate mortgage pricing.

• Adopt this goal: Cut your mortgage costs and pay off your mortgage early

Swing towards fixed rates?

Leading mortgage pundit Ray Boulger reckons that markets hate uncertainty most of all -- the one thing a hung parliament would most certainly bring. He thinks that the markets’ reaction to the changing political landscape could make fixed rates more expensive, meaning now could be a perfect time to lock in.

Some of the best deals for those with a 25% deposit are extremely attractive as the table below shows, which highlights the best buy five-year fixes as well as the leading short-term deals. Locking in for the long-term could prove a shrewd move in the event of political and therefore market volatility.  

What should you do?

Boulger makes the point that it’s impossible to confidently predict mortgage pricing with a general election looming, and never more so than when the outcome is so uncertain.

If there was ever a time when personal mortgage advice tailored to your specific needs was vital, it is now.

This is especially true for first-time buyers, those with unusual circumstances such as jumbo loans, a history of bad credit, buy-to-let investors or the self-employed. In fact for anyone other than whiter-than-white low-risk remortgage clients who are comfortable choosing their own mortgage, a broker is the way to go.

In the current climate brokers will help you to fully work through the through the pros and cons of fixed versus variable rates for your specific circumstances, rather than you simply trying to second-guess the markets.

You can get fully qualified mortgage advice from lovemoney.com’s independent team of experts. Plus they will be able to access exclusive deals that are not available to borrowers on the high street.

But, best of all, they do the boring bits -- form-filling, chasing lenders, and pushing though your mortgage or remortgage as quickly as possible.

You get great free advice and help with the legwork, leaving you plenty of time to catch up with that all-important election coverage.

• Watch this video: Sort out your mortgage online!

More: Make money from falling house prices! | Need to rent out your home? Tell your lender!

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term will revert to the lender's standard variable rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.