Will interest rates will rise at the end of Feb?

Thrugelmir

Seems as the low interest era is well and truly drawing to a close. The final BOE scheme to provide banks and building societies with a cheap source of liquidity is shortly to end. While the BOE itself is indicating an accelerated rate of increase in base rate.

Will improved deposit rates impact investment into equities, bonds and P2P, or cause a rerating.

Watch out: interest rates will rise at the end of February

Theres going to be an interest rate rise on 28 February. In just a few weeks you are going to see about 0.25% added to mortgage and savings rates. But you wont see a press release from the Bank of England that the base rate has gone up. Instead, for the first time in years, banks are going to be scrambling to offer savers better rates and the losers will be anyone taking out a new mortgage.

So whats happening? On 28 February an extraordinary financial measure, put in place in the days after the Brexit vote, will end.

It was called the Term Funding Scheme and was designed to make sure that the 0.25% rate cut in the wake of the shock referendum result in 2016, did actually feed through the financial system (while keeping them profitable). Under the scheme, banks and building societies were able to borrow money from the Bank of England almost for free. They did so with gusto. They have so far taken £106bn under the scheme, equal to around £3,500 for every working person in the country. Lloyds took £18bn, RBS £14bn, Barclays £10bn, Nationwide £9.5bn and Santander £8bn.

Nearly everyone rushed to grab their share: from the tiny Holmesdale building society which took £4m !!!8211; through to the Nottingham building society (£395m) and Virgin Money (£4.2bn). Specialist lender Aldermore, which does a lot of buy-to-let mortgages, has drawn £1.4bn from the scheme over a period during which its total net lending has been £1.5bn. It underlines just how important the cash has been. With all this money gushing out of the Bank of England, it has meant that no one has really had to bother chasing savers for their money. So savings rates, already massively depressed by the 2012 Funding for Lending Scheme, were hit further.

But the corner will be turned on 28 February. On that date, the banks and building societies will have to start repaying that £106bn. Theyll have a few years to do it, so maybe Im being a little dramatic suggesting rates will rise overnight. But lets say I wouldnt, right now, lock myself into Lloyds one-year bond paying 0.4% or NatWests two-year bond paying 0.85%. The banks are going to have to offer much better rates than that to bring the money in.

Some of the big banks may pooh-pooh this. Yes, £18bn sounds like a lot for Lloyds, but then it has an £800bn balance sheet, so its hardly fatal. But when rivals start offering as much as 3% to get you to move money, banks wont have a choice but to raise rates.

According to Paul Richards, chairman of Insignis Cash Solutions.Its likely we will see a 0.25%-0.5% increase in longer-term savings rates over the next 12 months and potentially up to 1% over the next 24-36 months, which could leave a one-year term account getting close to the 3% level.

Mortgage brokers I speak to are nervously anticipating what the big lenders will do. Maybe competition will keep rises in check. More likely, there will be a drift upwards by 0.25% at least. But if lenders have to offer 3% savings rates to attract cash, then mortgages will have to move a lot higher. If youre thinking of remortgaging, now is good time. And consider a long-term fix, not a two-year deal.

https://www.theguardian.com/money/2018/feb/03/interest-rates-rise-february-remortgage

OldMusicGuy

Thanks for highlighting this. I'm just about to shift a lot of cash into a bond ladder as I retire next week so I think I might hold off on doing that for a little while.

Anonymous101

Brilliant, I'm due to remortgage in April :money:

AlwaysLearnin

Anonymous101 wrote: »

Brilliant, I'm due to remortgage in April :money:

If you get a quote now, will they honour the quote for a period (long enough to get you to April)?

Anonymous101

AlwaysLearnin wrote: »

If you get a quote now, will they honour the quote for a period (long enough to get you to April)?

Yes, most honor quotations for 3 months from applications.
I know what I'll be doing this weekend!

DrEskimo

Anonymous101 wrote: »

Brilliant, I'm due to remortgage in April :money:

I'm in the unenviable position where 1/3 of my mortgage is on a 2-yr fixed that ends 31st March, and the remaining 2/3 is on a 2-yr fixed that ends 31st November.

I've come to the conclusion that if I want to put them on a single product (as I'm fed up of paying two product fees every time....), the cheapest way is to let the 1/3 run on a SVR 3.99% until November, and then put them all under a single product.

That means I have to wait till June time to lock in any rates....so I might have a double whammy of the SVR going above 3.99% during April-Nov, and an overall more expensive mortgage rate when I get a new product in November...! :T

Bimbly

DrEskimo wrote: »

I'm in the unenviable position where 1/3 of my mortgage is on a 2-yr fixed that ends 31st March, and the remaining 2/3 is on a 2-yr fixed that ends 31st November.

What's the penalty for coming out early of the mortgage deal that ends in November? If you are concerned interest rates are to go up (by 0.25% in May was the guestimate I heard), would it be worth switching to a new deal now?

DrEskimo

Bimbly wrote: »

What's the penalty for coming out early of the mortgage deal that ends in November? If you are concerned interest rates are to go up (by 0.25% in May was the guestimate I heard), would it be worth switching to a new deal now?

About £2k.

My calculations based on the assumption that the SVR will remain stable from April-November means I would pay an extra £600, so the fee, even with a cheaper rate on the whole mortgage for those 8months, still make it more expensive.

However, would that change if I assume that the SVR increases by 0.25%.....? Would have to go back to my spreadsheet!

Update: No It's still cheaper to let it run on the SVR of 4.24%, then pay the early exit fee.

Of course I am risking getting a worse rate by November, but I still think with a 0.25% increase in mortgage rates, I am better off letting it run.

stehouk

I've paid sky high interest rates on all my loans, credit cards, mortgages, overdrafts etc all my life and the first time in my life i'm completely debt free, no mortgage etc and i have savings i'm making sod all, so bring it on lets see rates go sky high again so at least i can get some money back to pay for my san miguels in benidorm in a few years lol

CatLady13

stehouk wrote: »

I've paid sky high interest rates on all my loans, credit cards, mortgages, overdrafts etc all my life and the first time in my life i'm completely debt free, no mortgage etc and i have savings i'm making sod all, so bring it on lets see rates go sky high again so at least i can get some money back to pay for my san miguels in benidorm in a few years lol

I'm also in the position of having a fair wodge of cash, no debts, and no mortgage, for the first time ever in my life thanks to an inheritance (very bittersweet but can't change things). It's also why I first came to these forums to learn about money and also the first time I'd ever really paid any attention to interest rates (and to find out how poor they are for savers). So, incredibly selfish, but I welcome an interest rate hike for savers.

Not been to Benidorm though :rotfl:

:beer:

jimjames

DrEskimo wrote: »

I'm in the unenviable position where 1/3 of my mortgage is on a 2-yr fixed that ends 31st March, and the remaining 2/3 is on a 2-yr fixed that ends 31st November.

Sounds like a mortgage based on Hotel California where it never ends. I'd love my fix to end on that date