Rising LIBOR may squeeze lending
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RAY BOULGER, SMALL MOVE IS SYMBOLIC
Rising LIBOR rates could have ramifications for mortgage pricing in the UK.
Despite low gilts and an expectation that interest rates will remain low for at least another year, LIBOR has risen slightly over the last month.
Three-month LIBOR was 0.88% at the time of Mortgage Strategy going to press, compared with 0.83% a month ago.
Meanwhile, the three-year swap rate stands at 1.42%, down from 1.63% a month ago.
Ray Boulger, senior technical manager at John Charcol, says: “One would expect LIBOR to be edging down rather than up. Although it is only a small move it is symbolic of early concern about unsecured inter-bank lending.”
Boulger says that this could lead to a squeeze in lending as banks look to control demand.
He adds: “We could have the bizarre situation where swap rates are falling but fixed rate deals are rising as lenders look to control supply.”
He says this could spell the end of competitive mortgage deals.
But Adrian Coles, director-general of the Building Societies Association, says: “Societies have come out with some competitive fixed rates recently, which is directly linked to the fall in longer-term swap rates.
“One-year LIBOR has been stable for the past month so at the moment I do not think there is anything to worry about regarding the pricing of mortgages.”
But he says what is more worrying is the situation in southern European countries.
He says: “There is the possibility of a financial crash similar to that of 2008 as a result of what’s happening in Europe.”
But he adds that societies’ exposure to Europe is fairly limited.
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