The Next Move in Interest Rates

It seems that the heat of a testy long, hot summer has seen the battle lines being drawn at the Bank of England. Just after the latest vote that had three members of the MPC voting for a rise, Governor Carney was back with his own version of forward guidance saying that he did not see that the time was right for rises yet, especially before Brexit.

Cue Chief Economist of the Bank Andy Haldane who came out and said he planned to vote for a rate increase “relatively soon”. Mr Carney was then back again saying that actually he could envisage interest rate movements soon which is all very confusing.

It’s not that we don’t appreciate how tough it is to accurately guide people as to the future direction and pace of change given the unexpected events we have seen recently, but sending out perfunctory mixed messages just serves to confuse and unsettle markets and the public alike.

Take that how you like but either way the time of rate rises seems to be drawing closer and even the Council of Mortgage Lenders have voiced their views that product prices have probably reached their nadir.

So where does all of this leave you, the borrower, in all of this?

The reality is that even if there is a rate rise it is unlikely to be anything significant at this stage, just a 0.25% rise, but it is the effect this then has and the pace of future rises that are important. There is no doubt that any rise at all will be pounced on by lenders and passed on to borrowers immediately as they are desperate for higher interest rates to return. It helps many pass on some of this to savers who have been suffering more than most in the low rate environment.

In fact, we may see rate changes before this as the prospect of imminent action will affect the cost of funds as SWAP rates rise in anticipation.

The market at present remains exceptionally competitive for those looking to remortgage however and 2-year fixed rates can now be obtained from 1.13%, (3.78% APRC) with a £995 Arrangement Fee. The new remortgage market means that most lenders now offer good rates including a free valuation and free legals to help keep the moving costs low.

With the biggest issue on every client’s lips at the moment still Brexit, we are seeing more borrowers look for the security of a 5-year fixed rate. For many, taking a 2-year fixed means that the rate will be up for renegotiation again just at the time the UK is meant to formally leave and this represents a risk that they are not prepared to take.

Their decision is helped by the fact that 5 year fixed rates have come down to such levels that are no longer vastly different. For example, you can now obtain a 5-year fixed rate at 1.65%, (2.96% APRC) to 60% Loan To Value with a £1,499 arrangement fee and a free valuation.

Even 10 year fixes are finally starting to get some more attraction with rates starting from 2.49%, (2.95% APRC).

What is evident is that people need professional advice more than ever in the current environment to carefully go through and understand all their options and the associated fees and costs, rather than opting for the first option they find with their current bank.

It also points to acting sooner rather than later.

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