Leader: Expect competition to intensify in September

For some while now, many industry pundits have predicted a general increase in mortgage rates, some citing increased funding costs.

However, this is incorrect. Take five-year swaps, for example. Two months ago a five-year swap was 1.64 per cent but, as at 14 August, it was just 2 basis points higher at 1.66 per cent. Two- and 10-year swaps are slightly higher, but not much.

Yes, some lenders have increased rates, but then again other lenders have decreased rates.

A more plausible reason, put forward by John Charcol senior technical manager Ray Boulger, for the recent round of repricing could be that lenders wish to stem the flow of new business during the summer months when it is more likely that their staff will be on holiday. Anecdotal evidence suggests some lenders have struggled over the past two months and their service has started to creak.

Further, many of the big banks are way behind on their lending targets. We reported last week that the high-street players were down, in lending terms, by anywhere from 7 to 19 per cent on the same period in 2014.

Obviously, they do not like being in this position. That is why we could see competition intensify come September, when lenders are more fully staffed.

Of course, this is by no means guaranteed. For this to be the case, funding costs need to remain low and the markets free of financial shocks.

We are not suggesting that another price war like that of last summer is on the cards, but it may be a bit premature to predict sweeping increases to mortgage rates.