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Interest rates will not rise on back of swap rates hike

  • 26/02/2002
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Recent concerns that interest rates are set to rise on the back of a hike in swap rates have been qu...

Recent concerns that interest rates are set to rise on the back of a hike in swap rates have been quelled.

Swap rates ‘ the rates at which lenders borrow money and use to price fixed rate mortgages ‘ shot up after the retail price index lifted the annual rate of inflation from 0.7% to 1.3%.

But Sir Edward George, governor of the Bank of England, said the money market sentiment was inaccurate and swap rates have dropped accordingly. However, money market swap rates are still high and suggest the base rate is likely to rise sharply over the next year.

But mortgage experts do not believe there is a need for borrowers to lock into long-term fixes in anticipation of future increases. Ray Boulger, senior technical manager at Charcol, said it is unlikely there will be any change in base rates over the next few months, but if they do rise, it will not be by much.

He said: ‘There is no rush for five-year fixes ‘ the target for them would be below 5.25%. There are lots of good two-year rates about at 4.25% to 4.5%. Three-year fixed rates are starting around 4.99%. A two-year fixed is the best value at present.’

Dominic Toller, head of marketing at Bristol & West Mortgages, agreed: ‘Long-term rates have gone up slightly and the feeling in the market is that things have bottomed out. We are in a sustained low interest rate environment so rates will not go as high as they were 10 years ago. Rates may rise and fall, but the parameters in which they move have become narrower.’

Nick Baxter, director of Mortgage Promotions, believes product choice will depend on the client’s attitude to the risk of rates rising.

He said: ‘Those who are worried may consider a capped product, although they can be more expensive than fixes. You would benefit from reductions, but be able to lock in a ceiling rate.’


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