What You Should Know about Equity Loan Rates for 2017
Home equity borrowing remained relatively stable in 2016 despite pressure from slow economic growth and the June referendum on the EU. Rates barely moved thanks to ongoing action by the Bank of England to keep the base rate reasonable. But with 2016 slowly fading and 2017 on the doorstep, what can we expect in the new year? In this post, we will look at the most important things you need to know, including what equity loan rates should look like.
As you read this post, bear in mind that the information is based on current trends and what we expect the government and the BoE to do within the next two quarters. Everything can change if either party doesn't do what experts are expecting them to do. In other words, what you read here is not guaranteed. Things could change.
Equity Loan Rates Should Start to Rise
No one is predicting a swift and drastic increase in equity loan rates for 2017, but increases are still expected. They should be slow given the state of the UK economy and the current weakness of sterling. How fast they accelerate will really depend on the position the government takes when Brexit talks begin in earnest in the spring.
One of the reasons for continued economic weakness is uncertainty about which way negotiations will go. Since Prime Minister Theresa May hasn't offered any clear-cut direction, the BoE has to remain conservative in its monetary policy in order to prevent the economy from going in reverse. That is helping to keep equity loan rates low. Should economic confidence increase once negotiations get under way, the BoE could consider a base rate increase that would ultimately lead to higher rates for equity loans.
Lenders Should Become More Competitive
With interest rates still as low as they are, there is less need for banks to compete aggressively because they stand to make so little profit. It's no different than savings accounts. As long as high profit margins aren't in play, banks have little need to compete. That should change by the second or third quarter of 2017.
The base rate cannot get much lower than it is now without bringing a complete end to consumer lending. Assuming that the base rate will go up in 2017, we also expect that competition among lenders will start picking up as well. Borrowers could be in a very good position to get some of the best equity loans they have seen in a while.
Equity Will Not Grow as Quickly
The one area that may not work out so well for homeowners is the growth of equity. Being that equity is the difference between what a property is worth and how much the owner still owes on his or her mortgage, slower growth in housing prices will result in a coincidental limit of equity growth.
In simple terms, equity growth slows along with falling property values. That means borrowers may not have as much equity to work with in 2017 as they were expecting. In some cases, it might be worth holding off on borrowing for another 8 to 12 months in order to build more equity.
The home equity market is certainly positioned to undergo some changes in 2017. For the good of both borrowers and the economy as a whole, let's hope those changes are all positive. Let us hope that equity loan rates remain affordable, property values continue to rise, and lenders decide to start competing a bit more aggressively for customers. Such conditions would be ideal for UK borrowers.
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