Choppy Water | What will happen with interest rates?
It’s been said many times before, but only a fool would try and predict financial markets. Primarily as they are so complicated (which is even before you get to Corona Virus…) and with so many variables ahead, it is very hard to say what will happen with interest rates in the coming months. That said, below are some things we are keeping a very close eye on:
Money Markets and interest rates
Money markets are certainly hedging their bets that rates are more likely to go down than up! we’ve seen a nose-dive since the onset of the Corona Virus. The graph doesn’t capture that there was a period of a few weeks toward the end of Feb where market rates were stabilising around the 0.75% mark, so the current drop below 0.5% for most markets is a dramatic change.
The Bank of England aren’t meeting again until 26th March, so one to keep a close eye on in the next few weeks leading up to that meeting. As mortgage funding works quite slowly we won’t see much change in the coming weeks, but as this starts to filter through we’ll see how it shakes out. In a positive way, I hope sanity returns to the market (and also purchases of Loo Roll…) as there does seem to be an over-reaction of what ‘might’ happen with Corona Virus. The next few weeks will be very interesting to see if the authorities have been rightfully cautious, or scaremongering. As right now we just don’t know which way it will go.
Budget effect on interest rates
With the above backdrop, we have a new Chancellor about to deliver his first Budget. Talk about a baptism of fire! I must admit that I don’t know a huge amount about Rishi Sunak, but he does seem to have a solid Investment Banking, then Hedge Fund, background. Certainly a good vantage point to see the interplay of markets. The main drivers for the budget seem to be a tax cut by reducing the burden of National Insurance and greater funding for the ‘regions’ (basically any area outside of London and the South East). There is a lot of speculation about what ‘might’ happen, so as per the above, as we simply don’t know, best to tune in and see how it plays out! That said, we aren’t expecting any ‘bad’ news for the property market, but equally, not expecting any ‘good’ news either.
What will happen with interest rates. Very large drop in rates again last week. This is discussed in detail above, but we aren’t seeing this filter through to lower mortgage rates, yet…
Last week we saw:
3 Month Sterling Libor – down 0.155% to 0.517%
2 Year SWAP rates – down 0.137% to 0.462%
5 Year SWAP rates – down 0.102% to 0.496%
These rates are relevant as most Banks buy in money based on the above markets. Libor often funds Variable rates and SWAP rates often fund Fixed Rates. Lenders will then add a margin to the above to reflect their risk and profit objectives.
Best Mortgage Interest Rates:
2 Year Variable from 1.24%
2 Year Fixed Rates from 1.14%
5 Year Fixed Rates from 1.41%
BTL Rates from 1.19%
The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process Source: Twenty7Tec Feb 2020
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