The Rise Not Fall Of Fixed Rates

All the talk at the moment in our industry is round the fact that most lenders are increasing their fixed rates, some dramatically, in a way that suggests we may well have seen the last of the incredibly competitive fixed rates for a long while.

This is something that many commentators as well as myself have been warning against for some time, but I think it is the scale of the changes that has surprised even those of us who expected it. Some lenders are increasing their fixes by around as much as 0.9%, which is a massive blow for many who are coming off low tracker rate products.

In a more worrying development we have seen at least one lender actually increase their standard variable rate even though there has been no change in Bank Base Rate as yet.

The real debate is over the fact that whilst lenders are blaming the increasing cost of funds, some commentators are now joining a growing dissenting voice that says lenders are taking advantage of the fact that competition is thin on the ground and, as demand is still high, they can charge higher rates whilst keeping supply low.

On a crude level, lender margins, as reported in one leading broadsheet, on the average 5 year fixed rate are now around 1.84%, which is a massive jump from average margins of 0.87% a while ago. 

The bigger picture here, is that these latest increases and the continued restricted supply in mortgages could adversely affect the wider economy and serve to derail the apparent recovery, which is happening much quicker than even the optimistic expected.

Even the notoriously apocalyptic predictions of Capital Economics have been reviewed, and instead of a 20% projected fall in house prices this year, they have now revised this to just 10%. I stick by what I said earlier in the year; overall we may see just a 5% to 7% further drop this year, certainly in London.

Many of our clients are still reporting that they are surprised at just how many offers at, or even above, asking price they are now getting on their properties, particularly on properties above the £1 million level, where the market seems to be particularly buoyant.

So, whilst lenders are poised to make themselves even more unpopular with the masses, not just causing the crises, but now being blamed for restricting the recovery, it is important to take a step back.

Things are still broke in the lending markets. The costs of funds, and perhaps more importantly the pressures put on lenders by the UK and European Authorities around Capital Adequacy ratios, and risk ratings, mean that it is not as simple as lenders purely extracting the proverbial urine.

I do think there is a degree of “advantage taking” by some lenders, but I do have some, maybe not sympathy as that is the wrong word, but understanding that it is not as clear cut as many believe.

This is a particularly complex crisis and lenders are not helped by authorities demanding more money is leant out on one hand, and making it more expensive and difficult to lend on the other hand.

At the risk of being accused of scare-mongering again, as I was last time I said rates are going to rise, I would really urge those that can fix now, to take that opportunity. Whatever the causes for the higher rates; cost of funds, government interference or simple profiteering, lenders will not be too quick to bring them down again. Especially when the next move in bank base, potentially as early as the end of this year, beginning of next, will be up.

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