2013 Prediction: end 2013 at 0.5%
2013 Actual: 0.5%
2014: 0.5% (potential sneaky rise to 0.75%)
Last year, this was the easiest prediction to make as economically at least, the UK and the rest of the world seemed to have a long way to go. Whilst the Euro issues seemed to have died down, (though not gone away), the threat of a double or even triple dip was still a real one.
As the year progressed and the threat of dips were replaced with some more solid, though unspectacular, growth expectations, sentiment has begun to turn round once more.
The key change in this area was the arrival of the new Bank of England Governor Carney and his well-publicised policy of “Forward Guidance”. This stated that interest rates would be kept low for the foreseeable future, at least until we saw unemployment drop to the 7% level once more which the Chancellor in his Autumn Statement suggested would not happen until 2015.
There was of course much wriggle-room in this statement from Carney, but nonetheless most commentators agree that change looks set for 2015 rather than this year.
Looking at the ever volatile interest rate markets, as of early December the indications were still for a rise in mid-2015, although with unemployment falling to 7.4% recently, this could of course change.
In fact, there is already a strong hint of changes, with The Sunday Times reporting that Carney is set to lower the unemployment trigger at which an interest rate rise will be considered to 6.5 per cent in a bid to keep rates lower for the rest of this year at least. Cynics would argue until the next election.
This looks set to happen at the time of the February inflation report and some think it could be set lower than even 6.5% so as not to put too much pressure on rate rise expectation.
Whilst three-month LIBOR has started the New Year in the same place it left off last year at 0.52%, SWAP rates have risen year-on-year. Although 1 and 2 year money is only a touch higher, 3 year SWAP’s are up 0.6% whilst 5 year SWAP’s are up 1.03% since January 2nd 2013, breaking the 2% barrier.
We also recently saw the announcement that the Funding for Lending Scheme, widely credited for leading to a drop in actual mortgage rates, being withdrawn for use with mortgage finance.
Whilst it may not have a massively profound effect on mortgage rates initially, it does look like the beginning of the end for historically low rates. Much depends on competitive pressures remaining high and lenders appetites to gain market share.
Together with the US finally beginning their programme of tapering, (reducing the amount of assets purchased under its’ Quantitative Easing plan), it seems that there is much more worldwide confidence of a sustained recovery although baby steps are still the order of the day.
There has always been a concern in some quarters over the actual medium to long term effects of the Quantitative Easing programme and, a late, small rise in Base Rate to help to head off future issues as well as temper house prices, is slightly more likely than it was last year.
We all know that without doubt the next move is up and the question is how long will competitive pressures in the mortgage market be able to keep actual product rates as low as they are now?
The Mortgage Market Review in April may be a catalyst for lenders to increase rates to try to slow down transactions whilst they get to grips with new rules and systems, but hopefully this will be short-lived.
However, it does seem that the best rates will be available at the start of the year rather than the latter, so for those looking to lock in to longer term rates this will be the time to do so.
So it does look as if 0.5% is set to continue for the duration of 2014, but a late, sneaky rise to 0.75% would not surprise anyone.