Speaking at the Mortgage Solutions Later Life Lending Event last week, Hansen Lu (pictured), housing economist at Aviva, gave his view on future mortgage pricing during a fireside chat with Esther Dijkstra, managing director, intermediaries at Lloyds Banking Group.
Dijkstra asked Lu if interest rates had reached their peak or if there was more volatility to come.
Lu said volatility was “hard to predict” and said he would not share his own prediction publicly, but said the markets expected an additional one per cent higher than where they are now for coming down by the end of the year.
“I would say that markets are often wrong with their predictions.
“A lot of rate rises have already happened. It’s probably close to the peak. Economists and forecasters tend to think that rates will peak at a slightly lower level than markets do,” Lu added.
He said fixed mortgage rates were priced according to future market rates, rather than current ones. He said because markets thought rates would peak at a lower level than they did following the mini Budget, this had already been priced in which is why mortgage rates have been falling.
“It could very much be the case that as we approach these future market rates and the Bank of England rate keeps rising, it could be that mortgage rates stay reasonably settled, especially fixed rates,” Lu added.
Rates not falling in line with gilt yields
Lu shared a graph on changing gilt yields and said this was what impacted later life mortgage rates.
Dijkstra also asked why lenders had not reduced product rates although gilt yields had fallen and Lu said it was partly down to lender rates not fully adjusting to the rapid rise in gilt yield rates.
“The lack of a fall right now might in part reflect rates and yields falling back into line to where they should have been,” Lu added.
When asked what impact the wider economic landscape had on the later life lending market, Hansen Lu said: “Higher interest rates have discouraged some customers.”
He said this included people who were considering inheritance planning, because it would change how much they could pass on to relatives.
He also said loan to value (LTV) limits had fallen and there were fewer high LTV options on the market. Lu put this down to increased interest rates and uncertainty among lenders.
