Homeowners looking for a mortgage could be lucky short-term winners off the back of Britain's decision to leave the European Union with experts predicting a rush of rate cuts as early as next week.

While stock markets have been left reeling in the wake of this morning's referendum result, homeowners are being told their cost of borrowing is going to stay at rock bottom for the foreseeable future.

Ray Boulger, of mortgage broker John Charcol, said: 'While I don’t expect any changes in lenders' standard variable rates, I think we are likely to see more lenders joining HSBC in offering sub-2 per cent five-year fixed rates, probably as early as next week.'

Five-year and 10-year gilt yields fell on the back of Brexit which should theoretically keep mortgage rates low

His reasoning follows a notable drop in UK gilt yields - effectively the cost of borrowing for the UK Government - which have fallen back to the all-time low hit towards the end of last week when the polls indicated a move towards leave.

These heavily affect money market borrowing costs in the form of swap rates, which in turn influence fixed rate mortgage prices.

Boulger said: 'Bank rate and other short-term interest rates are unlikely to change much, simply because they are already close to zero, but the fall in gilt yields will reduce the cost for lenders of longer term funding and hence open the door for even cheaper fixed rate mortgages.

'Most mortgage lenders didn’t pass on much of the pre-referendum fall in rates and so we can now expect to see more price competition, especially in the longer term fixed rates.'

Five-year and 10-year gilt yields have fallen by about 0.3 percentage points today to 0.55 per cent and 1.1 per cent, respectively. They are now 1 per cent lower than a year ago.

It is likely that swap rates - which mortgage lenders tend to price their mortgage rates in line with - will broadly follow, in theory providing scope for lenders to cut the cost of fixed rate mortgages.

HOW DO LENDERS PRICE MORTGAGES? Mortgage lenders decide how to price their rates as a result of various factors. One is the interest they have to pay out on savings. The lower the savings rates, the lower they can price mortgage rates. Currently savings rates are at rock bottom and they're not likely to rise any time soon. Another factor is known as 'cost of funds'. This is generally determined by the interest that banks themselves have to pay on the money markets, to borrow capital that they then lend out to homeowners and businesses. If these money market rates rise, it follows that mortgage rates are likely to rise too. Equally if they fall, mortgage rates can track down broadly in line with them. Many lenders purchase what is known as swap rates to protect themselves against future changes in money market rates. These effectively set the cost of money for banks over a fixed period. If five-year swap rates rise, then the cost of five-year fixed mortgage rates is likely to rise too and vice versa. All of these rates of interest are linked to the Bank of England base rate and also, importantly, to gilt yields. The yield on gilts - government-issued bonds - is determined in large part by how much confidence investors have in the UK government. As well as the risk seen in equity markets. With the stock markets see-sawing investors are rushing to this so-called safe haven - pushing the yields on Government gilts down. This is the reason that experts are predicting mortgage rates to stay low.

Boulger said: 'Equity markets have initially suffered a sharp fall but the price of government stock has risen, partly as a result of a flight to safety as the market perceives increased risk but it also now expects interest rates to remain low for longer.

'Economic uncertainty will be extended for at least the minimum two-year period during which our exit negotiations will take place.'

Should you stay or should you go?

Uncertainty is likely to put some buyers off and could provoke a dramatic drop in the number of people homes changing hands.

Richard Donnell, a director at property specialists Hometrack, warned: 'The immediate impact is likely to be a fall in housing turnover and a rapid deceleration in house price growth as buyers adopt a wait and see the short-term impact on financial markets and the economy at large.'

That is likely to force lenders to cut mortgage rates even further in a bid to get buyers buying and homeowners remortgaging onto competitive deals in order to preserve market share and keep profitable.

While it's impossible to predict the future with so many things in a state of flux at the moment, there is one certainty for borrowers amid the chaos: mortgage rates have never been cheaper.

Two-year fixed rates are available below 1 per cent, five-year fixed rates from below 2 per cent and even 10-year fixes can be had below 3 per cent.

David Hollingworth, of mortgage adviser London & Country, said: 'Borrowers have an outstanding range of mortgage options open to them at the moment.

'Those concerned about volatility in the near-term can currently fix their rate at record lows. That's likely not only to save them money now but also give real certainty around their monthly budgeting.'

Andrew Montlake, director at mortgage adviser Coreco, said it was vital to 'keep a calm head' amid frantic speculation.

'It is important for buyers to remember why they are purchasing a property,' he said. 'In most cases it is a home and should not be looked at as a short-term investment.

'It is too early to speculate about house prices and whilst there may be a slight easing, the underlying fundamentals of people needing a home and the current lack of supply in the property market remain.'

Boulger said the uncertainty could also be viewed as a bargaining tool for buyers.

'With mortgage costs at worst stable but probably falling, these buyers should use the uncertainty as a reason to negotiate a lower price rather than pulling out of their transaction,' he said.

But volatility could also push mortgage rates up...

That said, although mortgage rates should theoretically stay at rock bottom, lenders could be forced to hike them if severe market volatility continues.

And much will depend on how international markets react to the pending change of leadership in government following confirmation from Prime Minister David Cameron this morning that he will step down in October.

Sue Anderson from the Council of Mortgage Lenders said: 'Mortgage pricing is unlikely to react instantly although may be affected in the foreseeable future because of the effect on lenders’ cost of funds arising from the perception of economic uncertainty.

'How long this lasts will depend on how quickly markets resettle.'

She added that those who have already been approved for a mortgage but haven't yet completed won't be affected and said for lenders, the treatment of customers and of mortgage applications will be 'business as usual'.

She said: 'The more quickly markets resettle, the lower the impact on the housing market is likely to be. However, any prolonged disturbance would inevitably impact the housing market.'

Her comments echoed those from Mark Carney, governor of the Bank of England, earlier this morning who sought to reassure people that Britain had a 'contingency' plan in place to protect the economy from the negative impact of today's decision to leave the EU.

He said: 'Inevitably, there will be a period of uncertainty and adjustment following this result. And it will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world.

'Some market and economic volatility can be expected as this process unfolds. But we are well prepared for this. The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward.'

The European Central Bank also said today it 'stands ready to provide additional liquidity if needed, in euro and foreign currencies'.

Bank of England Governor Mark Carney could decide to cut interest rates to shore up confidence

What are 'additional measures'?

It's entirely possible that the Bank of England could cut the base rate further from 0.5 per cent where it has been since March 2009.

It is also possible it could flood the markets with money to shore up confidence and restrict the likelihood that banks freeze funding, causing a second credit crunch and mortgage finance to dry up.

This is a risk that all central bankers are hyper-aware of.

In a bid to prevent this outcome Carney also confirmed this morning: 'As a backstop and to support the functioning of markets, the Bank of England stands ready to provide more than £250billion of additional funds through its normal facilities.'

It's important to note that this time around the banks are in a much better position than they were in 2008.

The amount of money held by Britain's largest banks is now ten times higher than before the crisis.

And the Bank of England has stress tested them against scenarios more severe than the country currently faces. As a result UK banks have raised over £130billion of capital and now have more than £600billion of high quality liquid assets.

Carney said: 'This substantial capital and huge liquidity gives banks the flexibility they need to continue to lend to UK businesses and households, even during challenging times.'



