Interestingly, (if you are a geek like me) last week saw Libor (which stands for ‘London Inter Bank Offer Rate’ – and reflects the costs and ease at which banks lend to each other) dip under the Bank of England base rate for the first time since the events leading up to lockdown. In a ‘normal’ market, that would signal a move that we would expect the Bank of England to look at cutting rates. But with the Base rate at 0.1%, and everything that is going on, we are in nothing close to a normal environment.

Rate reduction?

With the press still overwhelmingly focusing on Covid-19, the knock on impacts of that, increased tensions with China and of course Kanye’s most recent breakdown, it is hard for more domestic (and I would argue relevant) issues to get a look in. The drop in Libor I feel this is very much a precursor to Brexit issues rearing their head between now and the end of the year. The summit of EU leaders just trying to agree the size and shape of their bailout package shows you the scale of the task. 

If the Bank of England were to reduce rates, it would most likely send them negative, which was always something the BoE said they would not do. Recent interviews with key members of the BoE have left the door more open to this and the can of worms that would open, as negative rates is something we have never experienced in the UK and it does complicate the Banking industry immensely.

Will it happen? I still think it is unlikely, but markets are starting to bet against that view and I have seen many times over the year how that can become a self fulfilling prophecy. So a debate we will be watching very closely.

Your mortgage deal

With the above as a backdrop you would also expect mortgage rates to have reduced more than they have but again, we aren’t seeing that. Are banks holding firm as they feel it is unlikely rates will go down further? Or using the excuse of lower capacity to cash in on big lending margins?

Who knows, but whatever way you look at it, the expectation is that rates are staying very low, for a very long time. That has very real world consequences on the type of product you should take out as just as rates are low it does not mean you should lock in for the long term, in fact quite the opposite.

Please do get professional advice before you commit to any new deals as to what the above means to you specifically. That is the only way you will be able to save the most money when looking to get a new mortgage.

Rate chasing | Your mortgage deal

Rate Corner

Nothing much more to add to the above, except that money markets all down again last week, some significantly, hence the above view:

In the last week:
3 Month Sterling Libor = down by 036.0% at 0.084%
2 Year SWAP = down by 0.043% to 0.131%
5 Year SWAP = down by 0.044% to 0.191%

Best Rates:

2 Year Variable from 1.29%
2 Year Fixed Rates from 1.06%
5 Year Fixed Rates from 1.34%
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 July 2020


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