By Lucy Barrett, Managing Director of Specialist Finance Broker Aria Finance
When Harold Macmillan was once asked by a journalist what he feared most as a Prime Minister, he allegedly replied: "Events, my dear boy, events."
If you were a broker or a borrower searching for a mortgage at the back end of last year, there is one event in particular that would have sent a shiver down your spine.
That event, of course, was the former Chancellor Kwasi Kwarteng's ill-fated mini-Budget.
What happened after that event is still fresh in the mind for many of us, so I won't spend long doing over old ground in this column.
But I think it's worth, six months on from the mini-Budget, looking at what has happened to mortgage pricing and where it might go from here.
Any brokers reading this column won't need me to tell them that rates have jumped significantly since September.
But the data really hits home how much more expensive mortgage finance is now than it was pre-Budget.
According to Moneyfacts, the average 60% LTV mortgage leapt from 4.34% in September to 6.19% in November, From that recent peak, the average 60%LTV loan had settled back down at 5.27% by last month. A similar trend can be right across the LTV bands.
Curiously, though, mortgage rates have edged lower as swaps rates have started to increase again.
At the end of February, two and five-years swaps rates were around 4.495 and 4.01%, respectively. That means they are both around 50S basis points higher than they were at the end of January.
If swap rates have a direct impact on the price of fixed-rate mortgagees, why then are they going in different directions? I think there are two plausible reasons for this particular phenomenon.
The first goes back to fallout from the mini-Budget itself. In the days following, many lenders pulled their entire fixed rate ranges simply because they had no idea how to price them.
Lenders I spoke to at the time said they would prefer to temporarily bide their time on the side lines rather than risk coming to market with a product proposition that would be loss-making five minutes later.
Some lenders came back to market quicker than others, of course, but I imagine all lenders are now sitting there with a feeling that they need to make up for lost ground.
After all, lenders need to lend money and, last year, many of them probably didn't do enough of it, for reasons that are entirely understandable, of course.
Secondly, many of those lenders came back with fixed rates that were, in my opinion, priced significantly out of kilter with where the rest of the market was at the time.
Again, that is understandable. I imagine the laggards eventually concluded it was better to be in the game with an uncompetitive range than sitting in the stands watching their rivals hoover up volumes.
Regardless, those lenders are now feeling as though they have a bit of slack to give when it comes to the price of their fixed rates.
Both of these factors have created intense competition in the market. And this competition, I believe, is the reason swap and mortgage rates have uncoupled since the end of last year.
In my opinion, that should act as a natural cap on pricing for the rest of the year, barring any unforeseen deterioration in economic or market conditions.
That is not to say mortgage rates won't rise this year. If swap rates continue to edge higher, lenders will have no choice but to tweak their rates to avoid lending at a loss.
However, if that happens, I don't think lenders will raise their fixed rates in line with swaps, but at a slower pace, for the reasons I've outlined above.
Of course, if swap rates level off, then we may see fixed rates stabilise or even edge a little lower, as they have done so far this year.
Given the events of the past six months, we ought to consider that a positive outcome for the market.
