Bespoke Mortgages

Insider's View

3rd July 2009

Fixed rates on the up

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There has been a surge in the number of borrowers choosing fixed rate mortgage deals over recent months, with the Council of Mortgage Lenders (CML) reporting that 69% of borrowers took out a fixed rate product in April 2009. With mortgage rates having plummeted throughout 2009 it is not surprising that fixed rate loans have become increasingly attractive. However it looks as if we could now be coming to the end of this low rate period and are beginning to see rates creep upwards.

Since the beginning of June the average five-year fixed rate mortgage increased by 0.41% and many lenders have started to re-price the fixed rate deals they have available. Both Nationwide and Abbey have already raised fixed rate costs and we can expect to see others follow suit over the coming weeks.

So why are rates increasing? This can be attributed to ‘swap rates.’ Swap rates are the borrowing rates between financial institutions and play a huge part in determining the cost of fixed rate lending for banks and borrowers. We have recently seen two-year swap rates increase from 1.86% to 2.37%, which is one of the biggest single one-day increases in ten years. There have been even more dramatic rises to five year rates.

So who sets these swap rates and why are they increasing? Swap rates are set by the money market, who are concerned about the sums the government will continue to borrow over the next few years. Therefore the higher the demand for this extra cash, the higher the price - which in this case is the interest rate. This in turn feeds through to borrowing costs and pushes up fixed-rate costs everywhere.  

And while we may not be able to predict the volatility of the money markets without a crystal ball what we may expect to see is that increases to interest rates could continue.  That said there are still some incredibly competitive fixed rate deals still available and if you are in the market to remortgage or purchase there is still time to snap one up - but be quick as they won’t be around for ever! Bespoke Mortgages has access to a wide range of mortgage products, speak to us today to find out more.