The Rate Debate

The rate debate

Interest rates are the source of constant speculation and predictions. During the eight years since rates were cut to the (then historic) low of 0.5% (now 0.25%) economists and financial commentators have made multiple attempts at anticipating when a rise will come. And at present such speculation has reached fever pitch.

Bank of England governor Mark Carney has been dropping not-so-subtle hints that an interest rate rise is on the cards while Monetary Policy Committee member Michael Saunders has been pretty vocal on the need for a rate hike. It’s not surprising since inflation (CPI) at 3.0% is currently a whole percentage point above the government’s target of 2%. Increasing interest rates is considered one way to bring this down.

But while interest rate rises may be, at present, purely speculation, mortgage rates have already started creeping up;  the reason for this is SWAP rates.

A SWAP rate denotes the interest rate charged when banks take an interest rate position in the money markets and in recent months SWAPs over various periods have risen quite sharply. This is already having an impact on the pricing lenders are applying to their fixed rate mortgages.

According to Moneyfacts 21 providers have upped their rates since 12 September with Nationwide, NatWest, Halifax and Barclays among the big name lenders making changes. Meanwhile Yorkshire Building Society has withdrawn its show stopping sub 1% mortgage -  just weeks after it launched it.

But what does this all mean for you? Well, if you’re approaching the end of your mortgage term or you’ve been enjoying your lender’s Standard Variable Rate for a while, now would be a good time to explore your remortgage options.

To fix or not to fix?

Firstly, it’s important to note that if rates do rise soon we’re not going to see any big movements. Let’s remember, a 0.25% rise will only bring base rate up to 0.5%. So, if you’re happy on a variable rate and you could easily cope with a small increase in your mortgage repayments there’s no reason to rush to fix.

However, that being said, a recent survey by industry regulator the Financial Conduct Authority shows a large number of people are not in that position. According to the ‘Understanding the financial lives of UK adults’ paper one in seven borrowers would struggle if monthly payments rose by less than £100. And a considerable number of borrowers have no protection in place that would cover their repayments and bills should they become unable to work.

Fixing your mortgage can give you certainty as you’ll know exactly what you’re paying each month - pretty useful in today’s unstable economic environment.Furthermore, recent research has revealed borrowers could be spending as much as £4,900 more than they need to by staying on their lender’s SVR. This so called inertia tax sees borrowers penalised for not remortgaging.

So, whether you’re looking to fix or not it’s a good time to review your options. At Private Finance, we can help you to find the most suitable product for you at the best possible rate, meaning rate rise or not, you can be sure you’re not losing out.

The Rate Debate

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