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Steely MPC cools long-term swap rates

Short-term swap rates have gone up but long-term ones have actually come down, presumably as a result of the Monetary Policy Committee&#39s willingness to increase base rates, as demonstrated last Thursday.

• One-year money is up 0.05% to 5.31%

• Two-year money is up 0.02% to 5.47%

• Three-year money is unchanged at 5.55%

• Five-year money is down 0.02% to 5.59%

Last week saw several rate increases but fewer than of late. Halifax has pulled its 4.99% two-year fixed but it is available online until 6pm this Wednesday. Until then it is rate of the week. GMAC-RFC has also pulled its 4.95% two-year fixed and Accord has launched an interesting US LIBOR tracking product allowing customers to benefit from the low, but likely to increase soon, US LIBOR rate.

Mortgage Trust has withdrawn its excellent buy-to-let fixed rates and Halifax has launched a truly flexible mortgage. It is a five-year discount with a 0.3% off the new Halifax flexible variable mortgage rate. Call me suspicious but I prefer a base rate tracker as this removes the possibility that lenders will increase SVR more than base rate or fail to pass on any future drops.

Northern Rock has placed its fixed rate portfolio, including its two-year fixed at 5.19%, on a withdrawal warning while Portman and The Mortgage Works gave us their customary heads-up that their fixed rates are likely to be pulled. Isn&#39t it useful when lenders do this?

The Woolwich showed renewed interest in buy-to-let by sending out an email explaining how it is responding to a mature buy-to-let market. It has made a few changes and will now lend up to £5m – considerably more than some of the opposition.

Villain of the week is Abbey, which seems to think it will get business through gimmicks. I don&#39t think a packet of shredded paper styled “A memento from Abbey&#39 will encourage me to do insurance business with it.

Three-month LIBOR is up 0.08% at 4.77%, which implies the City is expecting a 0.25% increase in the next three months while 12-month LIBOR is up 0.08% at 5.35%, indicating a 0.75% increase in the next year.

The MPC stood up to be counted and delivered a 0.25% increase in base rate for the second month running – andon an election day too! Most experts had been predicting another increase as the previous hikes have not tamed the rampant housing market or started to rein in consumer debt.

Meanwhile, Datamonitor unveiled research which shows that people who rely on their property to provide an income when they retire could be left high and dry. It also finds that debt is becoming an increasingly acceptable part of modern life. The report&#39s authors urge banks to lend more responsibly and consumers to save.

The latest housing market figures from the Halifax no doubt helped push the MPC towards its decision. Its survey shows prices jumped by 2.2% in May, slightly up on the 1.8% rise in April, with prices up 20.4% on last year.

The MPC must be wondering how high rates must go before the housing market starts to cool down.

Jonathan Cornell is senior technical director at Hamptons International Mortgages

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