Swap Rates influence Fixed Rate mortgage deals. The 5-year Swap, for example, rose to 5.21% following the mini-Budget in September, and dropped to 3.25% at the start of February. Since then, it’s risen steadily, ahead of the recent spike where it’s around 5%.
(Sources: Chatham Financial, Sterling Overnight Index Average (SONIA) Swap rates, to 30 June 2023; *Bank of England Base Rate, to 22 June 2023)
Mortgage rates have been a lead story in the media in recent times. After the turmoil surrounding the mini-Budget back in September 2022, a sense of calm had returned and some deal rates were falling as we moved towards May.
Since then, a number of factors combined, which resulted in lenders pulling products
at short notice, and then re-pricing them upwards.
The Base Rate rise to 5% was the latest event to impact upward pricing. This is the 13th consecutive Base Rate rise, and it’s now at its highest level for 15 years.*
The key issue has been the inflation figure. This has remained stubbornly high, at 8.7% in the latest figures out in June.
(Source: Office for National Statistics, CPI, June 2023)
High inflation influences the Base Rate, as the Bank of England’s target inflation figure is 2%. Also, the government’s objective back in January was to get inflation down to around 5% by the end of the year.
The high level of inflation, along with market sentiment, affect Swap rates which have also been on an upward curve as shown in the chart above. And Swap rates influence the pricing of fixed rate mortgage deals. If Swaps are rising, then fixed rate deals may rise too.
Where do we go from here?
This is the tricky question. One factor that was previously pushing mortgage rates down was a desire amongst lenders to fight for market share, with some accepting lower margins. This currently isn’t the case.
There is also an expectation that there may be further Base Rate rises to help tackle inflation.
However, as the chart shows, there were gloomy predictions after the mini-Budget, with Swaps rising sharply, but subsequently they did drop over the ensuing months.
Also, total mortgage lending in 2023 was expected to be around 15% lower than in 2022** (and maybe even lower in light of recent developments). This cooling of the housing market may again trigger enthusiasm amongst some lenders to fight for market share, as they do have the funds.
(Source: **UK Finance, December 2022)
Your next step…
In short, the path forward is difficult to predict, but irrespective of whether you’re on a Fixed, Tracker or Standard Variable Rate (SVR), do talk to us if you want to (or have to) reconsider your mortgage borrowing needs.
We’re also mindful that many of those who are renting (who may want to get onto the property-owning ladder) are unlikely to escape these rising costs, as landlords may pass on their extra cost of borrowing.
Whatever your situation, we would endeavour to help make sense of the multitude of options on offer. And you can take comfort from the fact that we operate in this sector day-in day-out (and currently many, many evenings), and have the expertise to deliver suitable advice.
Plus, we can liaise with the various parties (estate agents, solicitors, surveyors, etc) to help make this process as smooth as possible for you.
That’s why it’s vital that you take advice in this ever-changing marketplace. In fact, the majority of you have done just that, as advisers accounted for around 84% of
all mortgage distribution in 2022.
(Source: IMLA, December 2022 release)
The other consideration is the general value of the property you’re borrowing against.
The fall in house prices in June was broadly stable, with an annual decline of 3.5%. This was similar to the 3.4% yearly fall recorded in May.
What is clear though, for homeowners, is that price rises over time may help to offset any fall. For example, in the last two years alone (within a difficult economic climate), the average property price has still risen by over £19,000 – about an 8% increase in value.
Also, prices over the long-term have been incredibly resilient, and in the last 30 years, for instance, we have seen the average property price rise from around £52,000 in Q2 1993, to about £262,000 in Q2 2023. That’s more than a fivefold increase.
(Source: Nationwide, House Price Index, June ‘23 & Q2 ‘23)