SWT Wealth Management
Advertising feature: The Bank of England (BOE) base rate now sits at 2.25% but the gap between this and Mortgage fixed interest rates is getting ever wider.
The average two-year fixed rate has reached 5.97% by October, according to Moneyfacts. This means rates on 2-year fixed rate deals are now at their highest in 14 years. So, what is causing rates to be so much higher than they were at the beginning of the year? 1
It’s important to remember that rates have been historically low in the years since the financial crisis of 2007-2008 and that has resulted in lenders pricing mortgages in a way that offers good value to borrowers, whilst the market continued to evolve. House prices in the UK had fully recovered from the financial crisis by the end of 2012 and over the next decade average house prices increased by 53%. Far in excess of wages but low interest rates, enabled affordability.2
Mortgage rates changing and products being removed and replaced, in itself is not unusual in the mortgage market. The difference between a lenders fixed rates and the BOE base rate is also down to how mortgage rates are funded, and this can be from various sources. This includes customers ‘savings, government funding schemes, and the wholesale markets. With the latter changing quickly depending on other issues in the wider economy.
With fixed rates, the lenders which are banks and building societies, use what are called ‘Swap Rates’ which are as the name suggests where they and third parties swap interest rates. This means the price of a fixed rate mortgage is based on the price on which they can borrow the money on the swap market.
The BOE base rate has increased from 0.10% to 2.25% over the last 12 months. However, at the same time 2-year Swap Rates have gone up from 0.44% to 5.56% as of the end of September 2022. 3
Swap Rates reflect forecasts on what the BOE base rate may be in the near future. There are widespread expectations that interest rates will continue to climb and that is directly impacting on the swap market.
With inflation increasing, interest rates are also likely to continue to rise to try to slow it down. The current inflation crisis is having widespread effects on the economy and the mortgage market is just one area and this is expected to continue over the next 12-18 months before markets start to normalise again.
Hopefully this will clarify why we are where we are and why the mortgage market seems so unpredictable at the moment. One thing is for certain though, having advice when you are considering taking out a mortgage or changing the mortgage you already have, is so important as an adviser can search around for the mortgage that best suits your circumstances and ensure that your mortgage is right for your needs and is affordable in the long term.
1 2 3Source: Office of National Statistics Oct 2022
Source: Accord Mortgages 10/10/2022 & Money Facts Oct 2022
The home or other property on which the mortgage is secured may be repossessed if repayments are not maintained.
Commercial and some buy-to-let mortgages are not regulated by the Financial Conduct Authority. A procuration fee is paid to the intermediaries by the lender.
SWT Wealth Management is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
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