Swap Rates put Pressure on Cost of Borrowing

Jane Reeves

A guest blog from Jane Reeves, Portfolio and Finance Consultant at Young Group

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Over the past weeks, two noticeable trends have emerged in the mortgage market and we have seen that:

Higher Loan-to-Value (LTV) mortgages are returning to the market

For borrowers with limited deposits, it’s worth noting that the number of available mortgage products at 85% LTV has almost doubled over the past year to 560 (up from 310 in February 2010) and average rates for higher LTV loans have fallen, see below for a current example 80% LTV mortgage:

•  80% Loan-to-Value Fixed Rate Residential Product
• 2 year fixed rate of 3.98% (currently the lowest on the market)
• For residential purchases or remortgage
•  Available up to 80% LTV (lower rate of 3.35% available at up to 65% LTV)
•  £995 Arrangement Fee
• Free valuation and legal fees on purchases and remortgages

 Fixed rate mortgages rates are increasing

Latest figures from Moneyfacts Group show that 2, 3 and 5 year fixed mortgage rates all reached a 6-month high this month.  The cost to lenders of raising funding on the swap rate market has soared in recent months and they are passing on this cost to borrowers.

Recent reports also suggest that a base rate rise could happen sooner than previously thought and any rise in base rate would push mortgage rates higher, so borrowers looking to fix their repayments should act sooner rather than later.  Indeed, borrowers who have delayed the decision to commit to a new deal will now find themselves having to pay higher monthly payments.  On a mortgage of £150,000, a 0.50% increase in rate would add £42 per month to a borrower’s repayments, and with no signs of swap rates starting to fall, the likelihood is that mortgage rates will rise further.

In this light, the following current residential mortgage example looks extremely competitive:

•  65% Loan-to-Value Variable Rate Residential Product
•  Variable mortgage rate, currently 2.99%
•  For residential purchases or remortgage
•  Available up to 65% LTV
• Booking fee of £199 (payable upon application)
• No arrangement Fee
•  No valuation or legal fees on purchases or remortgages
•  No early repayment charges

It may be Base Rate discussions that dominate the headlines, but Swap Rates are the ones to watch…