David Hollingworth, associate director for communications at London & Country Mortgages, says as the threat of a base rate increase disappeared in the second half of last year the cost of funding rates began to fell.
With a very competitive mortgage market, Mr Hollingworth says lenders passed those cuts on in the shape of lower rates and increasingly looked for other niche areas that they could differentiate from the crowd.
As a result, he says more lenders brought out long-term fixed rate mortgages given the attractive rate and potential appeal to borrowers to lock in at a low.
Fixed rates are driven by the swap rate markets and, as such, both five-year and 10-year funds are at their lowest for some time, he points out.
Martin Reynolds, chief executive of Simplybiz Mortgages, says the fact the money markets where lenders in the main tend to buy their fixed rate money have seen the costs of long term fixed rates drop quite considerably over the past 12 months can be seen as an indication they do not foresee the Bank of England’s base rate increasing for a period.
Even when it does, Mr Reynolds says the increase in the base rate will be gradual. He says this has meant that lenders have been able to price these products more competitively than they have done in the past.
But Dale Jannels, managing director of Atom, has a slightly different take on what is currently going on in the money markets.
He points out what we are currently seeing is that these markets can fluctuate quickly and as a result we only recently saw a 10-year deal withdrawn after just a matter of days.
Nationwide launched and then swiftly pulled what was deemed to be a ‘market-leading’ 10-year mortgage rate for new customers in March. The 2.89 per cent fix was made available only to existing customers as part of its ‘loyalty’ mortgage initiative after just a week.
The reason behind the swift retreat from the wider debate was hotly debated.
On swap rates, London & Country’s Mr Hollingworth says it was unlikely Swap rate had risen significantly in the six days between the deal being launched and then access being reduced.
He told FTAdviser at the time the deal was pulled 10-year swap rates at the end of February were around the 1.5 per cent to 1.6 per cent mark and on the morning the deal was made more exclusive they were 1.93 per cent.
He said: “I don’t think that [swap rates] increased in the last week, when the product was launched. [Nationwide] may have happened to have a tranche of funds at a certain rate that allowed them to price that product so competitively.
“If it was taken up quickly that may have forced them to re-think the price or they may just have decided to pull away from it.”
Speaking at the time the deal was partially pulled Ray Boulger, senior technical manager at broker John Charcol, added that gilts have been “very volatile”.