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Where Next For Mortgage Rates

Author : Rubel Zaman


Fixed mortgage rates have started 2011 on an upward trend. At the time of writing nearly all ‘high-street’ lenders have upped their mortgage rates at least once this year, and some have done so twice.

With the recent, disappointing GDP figures, and a generally accepted consensus that the base rate should remain on hold until the latter parts of 2011, why are rates starting to increase?

Backdrop

The year started positively enough and many influential institutions revised their rate forecasts to mid-2011, resulting in an underlying upward trend in the wholesale money markets, and in turn the cost of mortgages. Secondly the first meeting of the Bank of England’s Monetary Policy Committee (MPC) (who were not privy to the fourth quarter GDP figures of -0.5% prior to their decision), reached a 3-way split on rate policy. This uncertainty was interpreted negatively by the markets, and the cost of funding rose further as a result.

On the release of the negative GDP data, one would’ve expected funding costs to fall immediately, however the reverse was true initially as the MPC’s collective voice took precedent. It was only towards the end of last week that the data, along with some particularly dovish remarks from Mervyn King the Governor, that SWAP* rates began to fall.

Outlook

Although rates have trimmed somewhat, it isn’t yet enough to mark a change of policy by the UK’s leading mortgage banks. This could of course change in the coming weeks but the overwhelming sentiment seems to be that fixed rates bottomed out a month or so ago, and only a deluge of extremely negative economic data will reverse these recent increases.

The bigger concern on the horizon still remains the replacement of the Government’s Special Liquidity Scheme (SLS), scheduled for January 2012, which will undoubtedly trigger a fresh scramble for funds in the second half of the year. The need for our high street banks to replace their current, high levels of ‘State Aid’, acquired during the depths of the financial crisis, should mean that we continue to see a dislocation between base rate expectations and commercial funding costs for the short to medium term, as their demand for alternative funding far outstrips market supply.

In summary, the base rate should still remain attractive for those on low rate trackers for a period yet, however the outlook is becoming increasingly mixed. For those on the lookout for fixed rates, you may have already missed the absolute lows the market had to offer, but before our banks start competing for replacement funding and push costs up further, there are still attractive opportunities available.

Please feel free to contact us on 020 7940 4747 or your adviser directly to discuss further any of the material in this article and its potential impact on mortgage rates.

*SWAP rates are the price to which financial institutions lend to one another, and it is the cost of this money that dictates the fixed mortgage rates that are be offered to consumers.


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If you are looking for a large mortgage, then contact Enness Private Clients, the large mortgage loans specialists.

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Tags:   large mortgage, large mortgage loans specialists

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Submitted : 2011-02-12    Word Count : 515    Times Viewed: 237