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Sancho Panza

Rates Start To Rise On Fixed Five-Year Mortgages

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Telegraph 10/2/14

'Five-year fixed rate mortgages are edging up to from their record lows as the mortgage market prepares for a base rate rise. Borrowers looking to lock in a long-term fix are being urged to act quickly to secure the best possible rates. [Calcuator: rate rise impact]

Santander, Natwest, Nationwide, Yorkshire Building Society, Clydesdale Bank and Tesco Bank have all increased the rate on their five-year fixed deals or withdrawn products altogether over the last two weeks.

The best five-year fixed rate has risen from 2.44pc in July to 2.95pc now. It is available from Natwest and Barclays subsidiary Woolwich, both at 60pc loan to value. Natwest charges a £995 fee and Woolwich charges £999.

David Hollingworth, of London and Country, said rates are still competitive, but the “tide is turning” and more lenders are expected to push their prices up.

“You tend to see a domino effect once a handful of lenders start changing their pricing. Borrowers looking to fix should not wait until just before a base rate rise. Lenders are proactive and prepare for changes well before they happen. We will inevitably see rates continue to edge up this year as we get closer to a base rate rise.”

Five-year fixed rate mortgages have been cheap for some time, thanks mainly to the record-low 0.5pc base rate and the Government’s Funding for Lending scheme, which allowed lenders to access cheap money.

But the Government withdrew Funding for Lending for mortgages this month and swap rates – which lenders use to price their loans – have been edging up, making it more expensive for lenders to access funding.

The cost of a £150,000 repayment mortgage over 25 years at various five-year fixed rates:

Rate

Monthly repayments

Total repayments over five years

2.44pc

£668.40

£40,104

2.69pc

£687.37

£41,242

2.95pc

£707.42

£42,445

Simon Gammon, head of Knight Frank Finance said even though the Bank of England maintains that base rate will not increase in the immediate future, the likelihood of a rise earlier than the forward guidance of 2016 is “building dramatically”. He said this is why swap rates are rising even though base rate was held at 0.5pc this week.

He said there is still an opportunity for borrowers to secure cheap fixed borrowing this year, but lenders are expecting to receive an increased number of mortgage applications.

“We have already witnessed many lenders over the last few years pick and choose the best borrowers, and mortgage application declines have at times been very high,” he said.

“Expect this trend to re-appear more as the number of borrowers wanting to fix their rates increase. The message then is get in early while they is still appetite to lend and many banks have large targets for this year to hit.”

This week Santander increased its range of three and five-year deals by up to 0.15pc. This took its cheapest five-year fix from 2.99pc to 3.09pc.

Natwest increased its 2.88pc five-year fix to 2.95pc, while Nationwide increased its three and five-year fixed rates by 0.10pc - taking its lowest five-year fix from 2.99pc to 3.09pc.

Yorkshire withdrew its leading 2.69pc five-year fix last month and this week increased its 2.84pc deal to 3.09pc.

Tesco Bank withdrew its 2.79pc deal last week and didn’t replace it.'

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Rising gilt yields have made it increasingly costly for lenders to hold down rates. The expectation of more aggressive US tapering threatens to make sovereign debt more expensive worldwide.

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Rising gilt yields have made it increasingly costly for lenders to hold down rates. The expectation of more aggressive US tapering threatens to make sovereign debt more expensive worldwide.

When I read this this morning,the thought that came across my mind was whether EM uncertainty was starting to have an effect on market psychology reinforcing the more mechanical side of the loan business.

Whilst the size of the currency moves worldwide has been small compared to global GDP,one does wonder whether some of the more senior traders(in years) are remembering back to black wednesday and other sharp 'unforeseen' spikes in Western rates.The rate action in Turkey is a timely reminder to anyone who pays attention that these moves can rapidly get out of hand.

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When I read this this morning,the thought that came across my mind was whether EM uncertainty was starting to have an effect on market psychology reinforcing the more mechanical side of the loan business.

Whilst the size of the currency moves worldwide has been small compared to global GDP,one does wonder whether some of the more senior traders(in years) are remembering back to black wednesday and other sharp 'unforeseen' spikes in Western rates.The rate action in Turkey is a timely reminder to anyone who pays attention that these moves can rapidly get out of hand.

I did wonder whether the Pound fell against the Dollar because the BOE was talking about keeping IRs low whilst the EM rate rises were kicking off.

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Noticed this as well..

Personally, could survive base rates getting to about 8%, probably more. I suspect that the effect of base rates hitting that level would be pretty apocalyptic anyway. The difference between this bubble and previous ones is that we have had over 10 years of over inflated prices, and low general inflation, so the sheer volume of big mortgages out there dwarfs anything seen before.

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The rates are always being tweaked up or down.. just an opportunity for propaganda as usual.

I keep an eye on them because a 5-year fix is about the only realistic fix I'd take.. although it's getting less and less worthwhile.

Recently was bottoming out at ~2.75%, has recently drifted up to ~3%.

Still very low. I'm on a Nationwide 2%-over-base-rate-forever deal anyway..

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Sometimes when their is a factual 'space' documentary on the TV they play the "noise" of a planet move unstoppably in space...the noise is hard to describe.

However, for some reason I can hear that noise all the time now.

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If Yellen continues to taper (as I suspect she will) then we could potentially see the US 10yr @ 3.5% by September and >4.0% in 2015. But much depends on what happens in China and Japan too.

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I did wonder whether the Pound fell against the Dollar because the BOE was talking about keeping IRs low whilst the EM rate rises were kicking off.

It's surprised me that the response by Turkey/Brazil/ZA was to raise rates in economies that were slowing anyway.This was a real departure from the 'playbook' of the last few years and gives a hint of how quickly international co operation can unravel in a world of diverging national self interest.

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If Yellen continues to taper (as I suspect she will) then we could potentially see the US 10yr @ 3.5% by September and >4.0% in 2015. But much depends on what happens in China and Japan too.

I'm not sure Yellen has any choice and as you point out,there are other external factors that could exacerbate the effects of the taper particularly,the unravelling of the Chinese shadow banking miracle.

Interesting paper

'The Food Crises and Political Instability in North Africa and the Middle East

Social unrest may reflect a variety of factors such as poverty, unemployment, and social injustice.

Despite the many possible contributing factors, the timing of violent protests in North Africa and

the Middle East in 2011 as well as earlier riots in 2008 coincides with large peaks in global food

prices. We identify a specific food price threshold above which protests become likely. These observ-

ations suggest that protests may reflect not only long-standing political failings of governments,

but also the sudden desperate straits of vulnerable populations. If food prices remain high, there is

likely to be persistent and increasing global social disruption. Underlying the food price peaks we

also find an ongoing trend of increasing prices. We extrapolate these trends and identify a crossing

point to the domain of high impacts, even without price peaks, in 2012-2013. This implies that

avoiding global food crises and associated social unrest requires rapid and concerted action.'

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It's surprised me that the response by Turkey/Brazil/ZA was to raise rates in economies that were slowing anyway.This was a real departure from the 'playbook' of the last few years and gives a hint of how quickly international co operation can unravel in a world of diverging national self interest.

Yep, meaning the US/EZ/UK are less in the driving seat than they were? UK was always probably a back seat driver, or a hitch hiker anyway?

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Buy now before you miss out.

I love that interpretation.

Cost of borrowing goes up therefore the cost of buying goes up. If you assume the price of the asset can never go down ever that is. The implicit message there that a house is just worth X and that's all there is to it constantly astounds me.

Appreciate that a higher cost of borrowing = lower asset price and their message becomes "Quick buy now prices won't stay this high for long !" :blink:

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Yep, meaning the US/EZ/UK are less in the driving seat than they were? UK was always probably a back seat driver, or a hitch hiker anyway?

If China blows up fast a LOT of flight money will stampede into US T's and the dollar. That may do gilts a short-term favour, or not. The repercussions elsewhere would be uniformly negative for the UK, however.

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It's surprised me that the response by Turkey/Brazil/ZA was to raise rates in economies that were slowing anyway.This was a real departure from the 'playbook' of the last few years and gives a hint of how quickly international co operation can unravel in a world of diverging national self interest.

Once your dollar reserves are exhausted raising rates is the only option you have left to defend your currency. Ultimately, everything is priced in dollars.

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Yep, meaning the US/EZ/UK are less in the driving seat than they were? UK was always probably a back seat driver, or a hitch hiker anyway?

The Brazils and Turkeys of this world, those with debts in currencies other than their own, face a very different set of problems than the privileged few who only owe money in their own currency.

When it comes to their debt UK/US/EU/Japan have lots of power and have shown it over and over again, withstanding or attempts at pegging ourselves to the mark, which kind of introduces the same problems those countries who owe dollars (or any other currency that isn't their own) face.

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It's all but a big game really.

Still, I'm glad I bagged my ten year fix (confirmed on Friday) last week for 3.89%.

Why anyone would go for a five year fix is beyond me. If rates even rise 1% in the next five years you can guarantee those fixes will be 4% + :lol:

Total madness as he ten year fixes are portable with LTVs of just 25%

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I've been keeping an eye on things recently in preparation for a remortgage later this year.

I have been looking at the 3 year fixed from the Chelsea BS. Until fairly recently they were offering it at 1.99%, noticed it's now gone up to 2.14%.

My current tie-in period ends in August - wonder where things will be then.

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It's all but a big game really.

Why anyone would go for a five year fix is beyond me. If rates even rise 1% in the next five years you can guarantee those fixes will be 4% + :lol:

Total madness as he ten year fixes are portable with LTVs of just 25%

I've been keeping an eye on things recently in preparation for a remortgage later this year.

I have been looking at the 3 year fixed from the Chelsea BS. Until fairly recently they were offering it at 1.99%, noticed it's now gone up to 2.14%.

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The Brazils and Turkeys of this world, those with debts in currencies other than their own, face a very different set of problems than the privileged few who only owe money in their own currency.

When it comes to their debt UK/US/EU/Japan have lots of power and have shown it over and over again, withstanding or attempts at pegging ourselves to the mark, which kind of introduces the same problems those countries who owe dollars (or any other currency that isn't their own) face.

The simple reality is though,that a lot of western banks are sat on a raft of toxic debts that aren't in their own currency and given that the implicit guarantee still remains in place to that sector,surely that undermines for your line of argument.

I know you've pointed out recently,iirc(might have been Ah-so),that banking regs are geared to be more equity like than debt like,but still,faced a with a major worldwide panic,wouldn't those swap lines jsut open right back up?

Edited by Sancho Panza

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Once your dollar reserves are exhausted raising rates is the only option you have left to defend your currency. Ultimately, everything is priced in dollars.

My point is that previous to recent history during this crisis,everyone seemed all too happy to join in the race to the bottom for export led growth?All of a suddent,it's changed.

Edited by Sancho Panza

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