Like many of you I suspect, I have spent the weekend in the garden (or anywhere outdoors!) enjoying the fabulous weather rather than thinking about mortgage rate rises. I suspect it will be a Monday morning of a fair few people being a bit sunburnt, or a bit hungover, or both! This is how we Brits enjoy the sun, after all, drink our body weight in alcohol, while sat in 30-degree heat, surviving on a dubiously cooked BBQ and wonder why we feel so rubbish the next day…
What a difference a week makes though. From the disappointment of losing the final of the Euro’s (with the even greater disappointment from the fall out of some idiots) to the highs of Lewis Hamilton winning a stunning British GP race in glorious sunshine. We also have the Olympics to look forward to next week. I am a huge boxing fan and we are sending a truly great team, possibly the best team ever, so I am hoping for lots of Gold coming out of Tokyo. I hope we can be proud of the sporting achievements that come from that, as we really should be celebrating a golden era of British success in sport.
Another area of success has been how we have handled the economy during Covid. But we have a classic dilemma that isn’t going away:
The big news of the last week was inflation going up again to 2.5% (from 2.1% last month), with no signs of it slowing in the short term.
I actually wrote a very detailed blog on this last week if you want to have a read of that here, which talks over the classic relationship between inflation and the Bank of England Base Rate, which then clearly affects the best mortgage rates.
This is particularly noteworthy because Dave Ramsden, a member of the MPC (Monetary Policy Committee – the rate-setting squad from the Bank of England) said last week that rising inflation could lead to a ‘sooner than expected’ tightening of monetary policy. Dave said it is “now conceivable that the pre-Covid peak in output in 2019 Q4 will be restored in the course of the current quarter”. He said inflation looks likely to peak “well above 3% and maybe nearer to 4%”, adding that he is now “somewhat less confident than I was that there remains a margin of spare capacity in the economy”.
So in short – with a rise in GDP and Inflation, you would expect to see rate rises, and hence mortgage rate rises – we are far from normal times, so there is a lot of pressure to keep rates low as I have previously discussed and keep the money printing presses in work. Until now, the MPC have been unanimous in their voting to keep rates at 0.1% and keep up Quantitative Easing. We could see a change to the mood now as at least one of the nine members is voicing real concern about inflation and how it can be tackled.
So there will be a real focus on their meeting on the 5th August to see what they will do about this. With these noises, we are now seeing money markets rise. SWAP Rates, which often fund fixed-rate mortgages, were markedly up last week. 2-year money was up 13% and 5-year money up 11% on the week prior. For any financial market to have a 10%+ swing in one week is noteworthy. I could get super geeky on this, but I’ll keep it brief today, but one of the best gauges of whether the Base Rate will actually go up is 3 Month LIBOR, which had a 2% increase last week, so quite modest, and also below the current base rate at 0.078%. Typically, when Libor goes above the Base Rate, you would expect to see a rate rise in that direction (the converse also being true), so financial markets do not appear to be betting on a rate rise in August, but clearly, financial markets are starting to price in higher costs over the next 2-5 years, so it is more a case of when, not if, the base rate will rise now.
Rents on the rise
Figures from the ONS (Office for National Statistics) show that rents are on the up again. A quite modest rise of 1.2% in the last 12 months to June.
This will be rare good news to any landlords, and a warning sign for any first-time buyers who are hoping to get on the ladder soon as this trend looks like it will continue as RICS (the Royal Institute of Chartered Surveyors) are reporting that demand is now starting to outstrip supply.
London was the worst-performing region, down 0.1% in that period, with both the East & West Midlands performing best as they went up 2.4%. This is consistent with the trend we have seen with people moving further, or completely out of, London, as there is less need to be in the office either full or part-time. Many companies will be allowing working from home to be a permanent feature from now on, so renters are making use of this by living in cheaper areas or close to friends and family.
Much of the interest rate outlook has been covered above.
Therefore, our default position stands, with the outlook on potential mortgage rate rises, unless you have any specific needs, we would most likely recommend a longer-term fixed rate if you have a 25% + deposit, but keep it short term or flexible if less than that figure.
In the last week:
3 Month Sterling Libor = up 0.002% at 0.078%
2 Year SWAP = up by 0.050% at 0.431%
5 Year SWAP = up by 0.069% to 0.679%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.99%
2 Year Fixed Rates from 0.94%
5 Year Fixed Rates from 1.14%
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 2021
If you would like more information on potential mortgage rate rises or other advice with your mortgage please contact one of the team.