Post BOE November rate rise - movement in mainstream mortgage fixed rates

K_S

It's early days yet but of the 3 relatively large mainstream lenders that have sent out broker product updates after yesterday's rate rise, they've reduced mortgage costs for some products. This includes rate-reductions, tweaking fees down, introducing/upping cashback, etc. Not huge rate reductions (up to around 0.25-0.3%) and more on the 2yr fix end rather than the 5yr fixes but reductions nevertheless.

simon_or

Very interesting, I thought that might happen given how much banks cranked up the rates during the Truss muck-up, Andrew Bailey taking extensive pains to dial down future rate hike expectations yesterday and how much swap rates have fallen since those days.

K_S

Another couple of smaller BTL lender product notifications came through today, again small reductions in fixed rates.

mi-key

I was half expecting this. They over inflated in the first place, and I think they are worried about putting people off borrowing until the next rate change. 

simon_or

Now that it's been a few days since the announcement, it'll be interesting to see bank rate announcements this week. I'm pretty confident it'll follow the same trend as above, slightly downwards.

PK_London

US montage rates are already circa 7% with base rates and risks set in. I do think that's where the UK mortgage rates are heading. Inflation is still 10% so even a mortgage rate of 5% today is minus 5% in real terms.

simon_or

I'm not so sure it's that straightforward to compare across countries.

For example, German mortgage rates last week hit a decade high of....3.03%. And as per the Bloomberg article it's among the highest in the Eurozone, so presumably many other Eurozone countries are at similar or lower levels.

https://www.bloomberg.com/news/articles/2022-11-04/german-mortgage-rates-hit-highest-level-in-decade-on-ecb-hikes

I'm not saying UK mortgage rates are going to crash, just that the margins between the BOE rate and the high-street bank mortgage rates might trend slightly lower in the short term while the Truss-premium unwinds and assuming there's relative political and fiscal stability going forward. Just a layman's opinion ofc.

tetrarch

You are looking at the wrong things and drawing comparisons that are just not there

The BOE base rate is effectively an overnight rate, the BOE will lend banks money at 3% tonight and the banks will repay it tomorrow with 1 days interest - i.e. 0.00821918% (3% / 365)

The rates that drive fixed-term rates in the mortgage market are Swap Rates and Gilt prices. This is a simplification but, the 5 year Swap rate is effectively what the market (i.e. financial institutions like banks and mortgage companies) EXPECTED the cumulative overnight rates to average over that period. 

The reason that mortgage rates went into meltdown was that the market EXPECTED rates to go very high and stay there. This expectation was magnified by a supply and demand anomaly in the very long end of the curve (i.e. 30 years out), that dragged the whole swap curve, and thus mortgage rates higher

Regards

Tet

simon_or

@k_s Any more rate updates from the banks?

K_S

@simon_or A few more lenders - large, mid-sized and small, sent out product updates today for a selection of products across BTL and resi.

It was again reductions in rates - small drops on some 5yr fixes and slightly larger drops on the 2 year fixes.

There were also improvements to BTL affordability with stress rates being lowered.

HSBC has improved their resi affordability by increasing the high LTI threshold to 85% LTV and reducing the income-threshold to qualify for enhanced LTIs. 

Overall, generally positive news on fixed mortgage costs and borrowing flexibility.

simon_or said:

@k_s Any more rate updates from the banks?

simon_or

Thanks, that's good news about BTL stress test rates as I've got one coming up late next year.

Very surprised that HSBC would make it easier to borrow larger loans, perhaps they are finally all slowing down and getting back in the market trying to attract business.