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A hung parliament could cost you thousands!

Christina Jordan
by Lovemoney Staff Christina Jordan on 14 March 2010  |  Comments 10 comments

Why your vote could affect your mortgage rate

A hung parliament could cost you thousands!

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):

Lender

Type of Deal

Rate

Fee

Cheltenham & Gloucester

2-year tracker

2.29% (Base + 1.79)

3%

Market Harborough BS

2-year tracker

2.48% (Base + 1.98)

£1,845

ING Direct

2-year tracker

2.59% (Base + 2.09)

£795

Yorkshire BS

2-year tracker

2.64% (Base + 2.14)

£495

Leek United BS

3-year tracker

2.69% (Base + 2.19)

£950

Throwing politics into the mix

So what does politics have to do with all this?

Related how-to guide

Cut your mortgage costs

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It had been widely assumed for much of 2009 that the Conservatives would win a General Election, but that assumption is now on shakier ground. And the prospect of a hung parliament is becoming ever more likely.

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.

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.  

Lender

Type of Deal

Rate

Fee

The Co-op Bank

2-year fixed rate

3.19%

£999

Hanley Economic BS

2-year fixed rate

3.29%

£749

ING

2-year fixed rate

3.29%

£945

The Co-op Bank

5-year fixed rate

5.04%

Fee-free

The Co-op Bank

5-year fixed rate

4.74%

£999

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.

Arrange a mortgage over the internet.

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.

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.

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Comments (10)

  • Mike10613
    Love rating 599
    Mike10613 said

    A hung parliament probably will mean higher mortgage rates as the low interest rate and quantitative easing madness ends. The economy is like a pyramid with the majority at the bottom struggling with high energy costs and rising food prices. The worse off are people working on low incomes. Lib Dem policy includes no income tax for people earning up to around £10,000 a year; this is a key economic reform. It will inject money at the bottom of the pyramid that will rise all through the pyramid as people spend more on services and goods in the shops. Hopefully they will spend more on services, like downloading music from the Internet. Increased spending on goods other than food would mean more precious natural resources will be used making fashionable designer crap. Although, clothing doesn't have a great environmental impact if care is used. 

    I am unsure about some Lib Dem policies like scrapping the renewal of Trident. I would prefer defensive measures like Patriot missiles rather than brute force mutually assured destruction threats like we saw in the past. It all depends on intelligence on what our potential enemies have; but cyber weapons seem to be a significant future threat that could render Trident a bad investment in defence. 

    We can certainly see an end to stupid interest rates with a Labour/Lib Dem coalition and it removes the threat of half hearted right wing, cut and cut policies. The prospect of a better electoral system will make the country more democratic too and the politicians more accountable; that could lead to less incompetence. They may listen to the people rather than the "experts" at the Treasury, Bank of England and London School of Economics; not to mention the other hanger on "experts" at OFGEM, NICE, and all the other waste of space expensive Quangos. 

    Report on 14 March 2010  |  Love thisLove  0 loves
  • Bierlijn
    Love rating 24
    Bierlijn said

    Anything that brings Vince Cable in as Chancellor will be for the long term good of the economy. Hang the parliament, I say. The Germans have had a large party with a small fiscally responsible party in government for decades, and look where it got them.

    Report on 14 March 2010  |  Love thisLove  0 loves
  • Meanmachine2
    Love rating 37
    Meanmachine2 said

    When we politicians that listen to the people you will also see pigs flying over Westminster.

    Report on 14 March 2010  |  Love thisLove  0 loves
  • nickpike
    Love rating 270
    nickpike said

    The markets are nervous because there is a fear that Labour might win, not so much a hung parliament.

    Interest rates cannot stay this low much longer. That will change things on the mortgage market. Inflation is not a blip. You do not print 200 billion and get away with it.

    Vince Cable would be a disaster. He is a Fabian and ex Labour MP. He has a pathological hatered of wealthy people and the Labour madness would continue with him. His mansion tax was an example.

    Changing the election process would benefit Labour, and is definately not preferred. 5 more years of Labour and the Fabians will have completed their mission.

    Report on 14 March 2010  |  Love thisLove  0 loves
  • ticktock
    Love rating 34
    ticktock said

    My money is being given to those that have not paid into this Country's system through taxes etc.

    England is a soft touch for those from the EU and elsewhere that can & do get money & houses for free.

    I have paid tax & NI for 50+ years and can only get a basic pension. I hate seeing certain people at the post office counter with 3 & 4 payment books being given hundreds of pounds EVERY week. What about us that have lived here all our lives and paid into the system and can't even get a council place, we have to pay high rents to private landlords.

    The Con's may seem to be for the rich but, the Lab's seem to stand up for those that don't work which I suppose that's how they will get re-elected. When you see old and/or ill English folk walking around without 2 pennies to rub together, you have to ask, why do we fight in wars that have nothing to do with the UK.

    With the money that MP's get on top of their pay, kick 'em all out.

    Report on 14 March 2010  |  Love thisLove  0 loves
  • eftpotrm
    Love rating 4
    eftpotrm said

    I don't like seeing large payments given to people who've never worked either, but when they're paying for ten children what are the alternatives? Let the children starve, take them into care, forcibly sterilise poor mothers? The right-wing press go on about these terrible benefit scroungers but they aren't prepared to say how the situation can be avoided.

    The Conservatives are trying to get themselves elected by implying they'll do the impossible. Sort out benefits scroungers without starving their kids. 'Protect the family' by giving married couples a few pounds a week - anyone getting married for that is mad. Renegotiate key European treaties that took years - with no support from other countries to do this - without leaving the EU. Cut billions of government spending without pushing us back into recession through the billions no longer going into our economy and higher unemployment bills. Better to pay for someone to work than to be unemployed. They want to cut the defecit but also want to cut inheritance tax for the richest.

    What will really cost us all thousands is bad government. Gordon Brown won't admit there's a problem but David Cameron's solution will cause more problems than it solves and just push us back under. Better a hung parliament with a government actually backed by more than 50% of the votes so they've got some real legitimacy, and better the voice of consensus and moderation than either Labour or Conservative's badly thought through plans.

    Report on 14 March 2010  |  Love thisLove  0 loves
  • Englishbloke
    Love rating 7
    Englishbloke said

    Just fixed for 5 yrs at 4.99% with no fee. Was almost 1% less than the fixed I have just come out of so reduces the term by 12 months. I think if it all kicks off it will be in about 2 yrs so a 2yr fixed seems like a bad idea!

    Report on 15 March 2010  |  Love thisLove  0 loves
  • glads69
    Love rating 13
    glads69 said

    We know that Labour's policies and knee jerk legislation has never been thought through. We know that Labour has squandered obscene amounts of taxpayer's money with little or no positive result to show for that. We know Gordon Brown has made some glaring mistakes (selling our gold reserves at the bottom of that market; removing the 10p tax band; robbing pensions; iniquitous retrospective legislation) and he refuses to accept responsibility for these things. All Labour ministers are clones of each other and none will say boo to Brown. They have broken more manifesto promises than kept them. So why vote Labour at all?

    Some say they do not trust Cameron or the Tories. If this means they trust Brown and his Labour lot more, God help all of us. At least we know that the Tories can sort out a financial mess as that is what they always end up having to do after Labour have been voted out. Ken Clark is a ray of hope for the Tories for those that cannot bear to see new Tories serving us.

    It is time for a change, so please exercise your one point of some control in this mess and vote for that change. If we end up with a hung parliament it is because people continue to vote Labour. Lets see what a Conservative v Lib Dem government can do for a change!!

    Report on 15 March 2010  |  Love thisLove  0 loves
  • Grayham
    Love rating 9
    Grayham said

    Labour say that they have saved the banks, however this artical makes for an intresting read:

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03/why_a_new_government_may_exten.html

    The basic message is that who ever is in power in 2012 will have to re-bail out the banks as all Labour have done enough so that it is left for the next government to sort out, knowing that it is unlikely to be them and that they can then use it to try to get back into power at the following election (in about 2015).

    Given that during the boom years they did very little to limit borrowing (public and private), so that they could then use it if things went wrong. For instance during the early part of the 00's the retail sector was saying, don't raise intrest rates it wil mean that we'll have to cut staff - so the BofE didn't raise them and then the shops would say that they had made big profits. If they had raised intrest rates a little a little less would have been spent in the shops a few people would have lost their (although more likely moved to another) job BUT it is likely that we would still have Woolworths and the economey would be in a lot better place now.

    I for one hope that they get so few votes that they are become the third or even fourth placed political party!

    Report on 15 March 2010  |  Love thisLove  0 loves
  • vega
    Love rating 3
    vega said

    To avoid a hung parliament, Cameron must openly and transparently offer major policies which undoubtedly will increase substantially the gap between Labour andConservative.                                                                                                 Firstly, remove the pro E.U. Bilderberger, Ken Clarke. A dangerous tory partner for all free thinking voters. Secondly, agree a referendum on membership of theE.U.                                                                   Offer policies such as a large increase in the state pension for the old and POOR, most of whom fought in a war to keep us free of a New World Order. A SINGLE Pensioner in Germany and Switzerland receives double the UK pension for 2 persons. This alone would be worth thousands of votes!

    Get tough with the banks and their disgusting bonus ripoffs. If they threaten to leave and find employment abroad, well let them. They will be lucky to find a better job!

    The public do not realise that there is only so much money in the pot which has to be shared by 60.000.000 population. Pay a footballer £100,000 per week, an actor a couple of million, Blair £2,000.000 per year for security, multiplied by thousands of similar expenses how much is left to pay the rest of us or support the men dying in Afganhistan because of a lack of equipment.

    Come on David Cameron, lets see a bit of Margaret Thatchers strength and guts.

    Report on 23 March 2010  |  Love thisLove  0 loves

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