The mortgage market is likely to see more and lengthier long-term fixes as lenders aim to cash in on what they think will be a sustained period of low interest rates, brokers have predicted.
At the start of the month (August 1), a standard residential 15-year fixed rate mortgage product was made available for the first time in a decade by Virgin Money, while Leeds Building Society brought a 15-year fixed retirement interest only product to market at the end of July.
Data from Moneyfacts also showed the number of 10-year fixed mortgages available this month was nearly double that of August 2017 — up from 80 products to 157. The average rate is also 22 basis points lower than two years ago at 3.01 per cent.
Advisers thought the rise in more long-term products coming to market was a sign lenders were predicting interest rates would stay low for the foreseeable future.
This is backed up by current swap rates — the rates at which the money markets lend among themselves and to lenders - which partly underpin the rates at which consumers can borrow.
A fall in swap rates indicates that interest rate futures markets have already factored in a possible base rate cut due to uncertain economic conditions and according to Nick Morrey, product technical manager at John Charcol, current long-term swap rates are the “lowest in recent history”.
Reuters’ data shows as at yesterday (August 13), the 20-year swap rates sat at 0.83 per cent. The 15-year sat at 0.78 per cent and the 7-year at 0.61 per cent.
Data from ICE Swap Rate published last week (August 6), provided by Moneyfacts, showed these long-term rates have reduced over the past two years.
| Date | 10-year ICE swap rate | 15-year ICE swap rate |
| August 2019 | 0.714 | 0.827 |
| August 2018 | 1.585 | 1.671 |
| August 2017 | 1.129 | 1.344 |
Source: Moneyfacts/ICE.
Dan White, director at Champion Hall & White, said he thought the fact lenders were moving into the longer-term fixed space was confirmation of “what they think interest rates are going to do”.
He said: “People seem to have the assumption that rates are going to fly high but if anything, consumer spending will be lower and inflation rates will not be met, so interest rates will drop to encourage spending.
“Long-term fixes would be beneficial for the lender. Lenders do not see rates going up and therefore, the lenders can take advantage of the uncertainty people are feeling and the security they want. It’s ideal for the lender if rates remain low.”Martin Stewart, director of The Money Group, agreed that “the main winners with long-term fixed rates will be the lender themselves”.
He said: “I can’t see the base rate moving, other than downwards. With a no-deal Brexit looming there is no reason to increase the cost of funds.”
Brokers also predicted the trend would continue and Shaun Church, director at Private Finance, said there was “clearly a demand for the product” and a “pattern” was developing.
He added: “We could switch towards a more continental model where it’s the norm to have long-term fixed mortgages. I think there’s a trend developing.
“After weighing up the costs of remortgaging and the fact the gap in rates between longer and shorter term fixes is narrowing, I think more people will opt for these products.”
Mr Morrey agreed that “a lot of the rest of the world have long fixes”, adding that he thought now was the best time for lenders to introduce more to the market.
He thought lenders should be launching 20 to 25-year fixed rates to the market — with early repayment charges only for the first five years — and that the amount of long-term products would go up as economic circumstances became more uncertain.
imogen.tew@ft.com
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