Short-term Loans, as well as long term loans such as Mortgage Loans, have made it to the headlines again, by going down significantly in terms of interest rates. With the British Economy being dominated by the service sector, it’s hard to ascertain where exactly it’s headed. The Banking industry of the service sector contributes a lot to the GDP of the country and also plays a huge role in making the UK the fifth largest economy in the world. The decrease in lending was, obviously, ascribed with the unpredictability of Brexit since it is just around the corner. The reason why people are choosing short-term loans is because of the uncertainty of Brexit.Due to the fact that text loans have a less interest rate and are comparatively pocket-friendly, customers have taken advantage and scored themselves a deal in the driven mortgage market. A report by the financial experts in the UK claimed that mortgage approvals climbed up the ladder at the rate of 0.3%, which is higher than what it was last year.
A number of financial experts have said that customers have decided to take a step back before getting a mortgage loan or long-term loans because of the uncertainty of what Brexit would bring with it. Customers have even stopped investing their money. However, this process is still slow and not stopped entirely because of the interest coming from first-time buyers. As a result, investors have expanded their share in the market, giving lenders the opportunity to offer competitive deals and discounts, which are suitable for this scenario.
It is said that first-time buyers who are concerned about the interest rates going up after Brexit might consider going for remortgaging, in order to ensure that they make use of the offers while they are still on the table. Experts say that while the market might seem bleak, there are still customers out there who are willing to buy but are uncertain because of the market conditions. Fixed Rate mortgages sort of help customers to bag a specific interest rate for a period of time, giving them protection from any major fluctuations, which may occur in the market. Since the majority of customers are risk-averse, this seems very attractive to them.
What impacts the Interest rates?
The cost of the loans is bound with the cost of bonds. What this means is that every day, when the lenders decide the rate of the loan, they determine that by taking a look at the cost of the bond. This means that if they sold your loan, they would be getting the price of the bond. These prices fluctuate persistently and there are times when there is a major movement – either up or down, in the prices of these bonds. If the price of the security increases, by a certain percentage, lenders change the pricing of the loan accordingly.
However, this may seem very simple, there is a lot of aftermath involved. Lenders need to predict the future of the interest rates by looking at the market trends and events, which would impact the rate, which, in this case, is Brexit or the uncertain economic conditions of the market. This way, lenders estimate future rates and price their loans accordingly.
A strong force, which typically drives the prices of bonds, is the fear of inflation. Bonds are essentially fixed investments which means that if the rate of inflation is really high, the prices of bonds would seem a lot less appealing which is why the prices of these bonds decrease. As they decrease, the interest rates climb up. Since the interest rates are so low right now, people want to take more loans and invest that money in their businesses but the reason why they cannot do that is because of the uncertain market conditions. This is a major reason why loans with shorter term periods like the text loans seem a lot more appealing than long-term loans.
In the End
With that said, it is quite difficult to assume where the rates are headed, given the current scenario but it is certain that they are going to stay low until the effects of Brexit are clear. If the trend continues to be this way, the prices for housing might increase slightly, but with short-term credits such as text loans, there is nothing to be alarmed about.