
In a world that seems perennially filled with doom and gloom right now, we always try to provide some balance at eddge. Sadly, from time to time, even we have to be the bearers of news that does sit squarely in the good category. And this is one of those times.
Over the last fortnight we have witnessed pretty rapid rises in gilt yields. For example, the yield on the 2-year gilt has increased by more than 1% in the space of a month. You may well ask us why we are telling you this. A fair question. Well, gilts fuel the pricing for swap rates, which in turn fuel the rates for fixed rate mortgages.
The detail
Prices and yields are very volatile right now, so by the time you read this they may well have changed. But, at the time of writing, current yields are their respective increased over the last month are as follows:
2 years: 2.85% (+1.04%)
5 years: 2.65% (+0.96%)
10 years: 2.66% (+0.72%)
30 years: 2.94% (+0.49%)
Compare that to just a year ago, when yields were close to their all-time low. Right then they were:
2 years: 0.10%
5 years: 0.26%
10 years: 0.53%
30 years: 0.93%
As we signposted a moment ago, these huge rises in yields are reflected in swap rates (and thus fixed rate mortgages) and it is also the reason why there is basically hardly any difference between the pricing for fixed rates for different time periods.
So, what next?
Because the single biggest factor driving the juggernaut that is inflation, namely gas prices, will continue to be largely outside the Government’s control (even when (please!) we have a properly functioning government again), it is impossible to have any confidence in predicting where we will be in six months’ time. However, in the short-term, the message from the gilt market is crystal clear. We can expect further and significant increases in the cost of fixed rate mortgages over the next few weeks.
What should borrowers do?
If you are near the end of a current deal, it’s time to act. At the very least, talk to us about your options and what we think the best course of action is. Even if you aren’t close, we’re always very happy to chat anything through if you’d like to speak.
We will end with an attempt to provide that eddge balance. Rates are still, historically speaking, low. So it’s not really time to hit a massive big red panic button (should you have one to hand), or head to the air raid shelter (should you have one of those either) yet. We’ll keep you posted over the coming weeks. If you need us, you know where we are.
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