Longer-term fixes ‘have bottomed out’

Business chart drawn on a blackboard

Longer-term fixed rates look set to increase because 10-year gilt yields have risen from a low of 0.527 per cent in August to 0.98 per cent at the end of last week.

The past fortnight has seen lenders continuing to cut prices on some of their fixed-rate deals. However, with swap rates edging up and the markets already pricing in any further potential cuts to the Bank of England base rate, brokers believe fixed-rate deals have reached the bottom.

John Charcol senior technical director Ray Boulger says: “In the past week or so we have still seen some rates come down but I think they have probably bottomed out.

“Longer-term fixed rates are likely to start creeping up as 10-year gilts moved sharply following Prime Minister Theresa May’s comments suggesting the Bank of England should rein in quantitative easing. A 0.15 per cent cut to base rate has already been priced in to the market.”

Speaking at the Conservative Party conference last week, May criticised the BoE’s policy of low interest rates and money printing, saying it had benefited only the wealthy. She said: “People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer.  A change has got to come. And we are going to deliver it.”

The prime minister’s criticism was unusual given the independent status of the BoE but Downing Street denied it was an attempt to influence monetary policy.

Your Mortgage Decisions director Dominik Lipnicki says that, even if the Bank were to continue on its path of rate cuts despite May’s objections, a levelling-out in fixed rates is inevitable.

He says: “The costs of lending are still there regardless of how low the base rate goes. The only way is up for fixed rates. There won’t be big increases as lenders are still seeking to reach their year-end targets and many are failing.

“Fixed rates will go up in a measured way but for borrowers it is as good a time as ever to remortgage.”

Ipswich Building Society chief executive Paul Winter says lenders will not fully reflect any further base rate cut because it will be “unaffordable for them”.

He adds that building societies in particular would be loath to cut interest rates any further because savers, who are already suffering, would earn even less on their money.