|Mortgage Provider||Mortgage Type||Initial Rate/Duration||Subsequent Rate/Duration||The overall cost for comparison||Early Repayment Charges|
|Fixed Rate Mortgage Deals||1.74% Fixed until 31/03/2016 (60%)||5.49% Variable for term||5.20% APR||3/2% until 31/03/2016|
|Discount Rate Mortgage||1.78% - SVR minus 3.71% for 2 years (60%)||5.49% Variable for term||4.20% APR||1% for 2 years|
|Tracker Rate Mortgages||1.78% - Bank Rate plus 1.28% for 2 years (60%)||5.49% Variable for term||5.30% APR||1% for 2 years|
|Large Loan Mortgage||1.79% Fixed until 31/03/2016 (65%)||3.89% - Barclays Bank Rate plus 3.39% for term||3.70% APR||3% until 31/03/2016|
|Offset / CAM Mortgage||1.79% Fixed until 31/03/16 (60%)||3.99% Variable for term||3.80% APR||3% until 31/03/2016|
|Large Loan Mortgage||1.79% - Bank Rate plus 1.29% until 31/03/2016 (60%)||4.00% Variable for term||3.80% APR||3% until 31/03/2016|
|Tracker Rate Mortgages||1.94% - Bank Rate plus 1.44% until 01/04/2016 (70%)||4.79% Variable for term||4.30% APR||1% until 01/04/2016|
|Exclusive Mortgage Deals||1.99% Fixed until 31/03/2016 (60%)||3.99% Variable for term||3.90% APR||3.00/1.50% until 31/03/2016|
|Remortgage||1.99% Fixed until 02/04/2017 (70%)||4.74% Variable for term||4.40% APR||3% until 02/04/2017 plus benefit|
|Large Loan Mortgage||2.05% Fixed until 31/03/2016 (70%)||4.00% Variable for term||4.10% APR||2/1% until 31/03/2016|
* All mortgage calculations and APRs are based on a £150,000 repayment mortgage at 75% loan to value over 25 years. Should you require different mortgage calculations then please call one of our independent mortgage advisers.
Today's Quarterly Inflation Report and mortgage rates
At first sight today’s Quarterly Inflation Report from the Bank of England might suggest Bank Rate will start rising earlier than previously expected. However, the best guide to whether the report has changed market perceptions is to look at gilts and most gilts closed today broadly unchanged.
Therefore, although the Quarterly Inflation Report indicates the Bank of England sees unemployment falling to 7% earlier than when its Guidance was introduced 3 months ago, in fact 5 quarter earlier, the market never believed the original forecast and had already come to this conclusion, which explains why gilt yields are higher today than 3 months ago.
As far as mortgage rates are concerned there is therefore absolutely no reason to expect any rate increases (or decreases) specifically as a result of this inflation report. What will drive mortgage rates tomorrow are the same factors as were relevant yesterday.
It was widely reported that Mark Carney, the Governor of the Bank of England, said Bank statisticians foresee a 40% chance unemployment will reach the 7% threshold by the end of next year, with a 60% chance it will happen by the end of 2015.
Translated this of course means the Bank thinks there is a 60% chance the trigger point won’t be reached next year and its central estimate is that unemployment will hit 7% around the middle of 2015, i.e. just about the time of the General Election.
Whilst the MPC is independent, Mark Carney was chosen by The Chancellor and it is pretty clear the two are on the same page when it comes to considering the right time for an increase in Bank Rate!
Furthermore Mr Carney, and others at The Bank, have recently highlighted on several occasions the fact that just because unemployment has fallen below 7% it doesn’t automatically follow that Bank Rate will be increased. He said: “The unemployment threshold is a staging post for assessing policy and not a trigger for automatic increases in interest rates. When the threshold is reached the MPC will set the policy to balance the outlook for inflation against the need to provide continued support to the recovery in output and employment. With the recovery taking hold, our task now is to secure it.”
The Fed has recently suggested it will lower its unemployment threshold before considering tightening policy and this, coupled with this month’s 0.25% decrease in the ECB rate, suggests that on the global stage policy makers are still very nervous about the speed of economic recovery. The ongoing increasing demands on banks globally to hold more capital will continue to restrict for some time their scope to increase lending. Furthermore, because massive government and central bank intervention has been needed to stimulate economies we are still a long way from being out of the woods.
At today’s Inflation Report Press Conference Mark Carney also said: "We make policy for the whole of the UK and not just for within the Circle Line.“ In this respect the MPC’s task of setting the right level for Bank Rate is a microcosm of the ECB’s problem of setting one rate for the whole of the Eurozone. It is, however, very easy for anyone based in London to forget that although the increase in house prices is now rippling out from London to most of the country, there are few places outside London where prices have recovered to the level of 6 years.
On the employment front today’s figures from the ONS of another increase in the number of part-time workers who would rather be full-time is a reminder that the labour market still has some way to go to get back to normal. In addition a major short term unknown is how many immigrants will arrive in the UK next year from Romania and Bulgaria. If just 100,000 out of their combined 27.5m population come it would be enough to impact on the unemployment numbers on the basis that even if they all found work it would be at the expense of some of the indigenous population.
With CPI down to 2.2% and in the short term further recent falls in the price of fuel likely to counterbalance energy price rises inflation looks like less of a threat. Furthermore if, as looks likely as well as sensible, the Government dispenses with its green taxes on energy bills this will knock about 0.2% off the inflation rate.
As we get closer to the likely date of the first increase in Bank Rate gilt yields, swap rates and the cost of fixed rate mortgages will start to rise but the scale of that increase will depend on how quickly the market expects rates to rise.
The timing of mortgage rate increases is debateable but what is clear is the scope for rate falls is negligible, except at the high LTV end of the market as a result of a major increase in competition following the introduction of Help to Buy 2, with the non Help to Buy lenders currently making the running.
Today’s news reinforces the arguments for buying a 5 year fix as the Bank of England has now come into line with the market in terms of interest rate expectations. Even borrowers who are not happy to be locked into Early Repayment Charges (ERCs) for 5 years can consider this with some 5 year fixes being available without ERCs and others on an offset basis.