Woolwich are reducing the rates on some of their mortgages today, with their best fixed rate being a 4 year fix for LTVs up to 60% at 3.99%. This is the market leading 4 year fixed rate, although it is only available for purchases. We will also see a few more fixed rate cuts on Friday but after that it looks as if the recent trend of fixed rate reductions is about to be turned on its head following various significant news items this week which have combined to push gilt yield sharply higher.
Gilt yields for maturities of 5 years and longer fell dramatically on March 5 and 6 on the announcement from the Bank of England of the details of their quantitative easing (Q.E.) programme. Once the market had settled down the following week the biggest falls were around 0.8%, although the follow through to swap rates was rather muted, with falls only extending to about 0.3%.
Swap rates have in general gone back up to their level prior to the Q. E. announcement and some shorter dated swaps are actually now a little higher. This is bad news for fixed rate mortgage pricing and hence my expectation that we will see some lenders start to re-price upwards as early as next week.
The key reasons for the sharp rise in gilt yields this week are:
This week's shock inflation figures.
Mervyn King's comments to the Treasury Select Committee, effectively telling Gordon Brown to stop flexing the corporate credit card.
Yesterday's failure of the long dated gilt auction, the first such failure, excluding index linked gilt auctions, for 14 years, with only 93% of the gilts on offer being taken up..
A public disagreement on the Government's most important policy, however diplomatically expressed by the Governor of the Bank of England, between him and the Prime Minister will be a major worry for the markets, especially in view of the huge amount of money the Government needs to raise for at least the next 2 years. It further undermines the position of an already weak Prime Minister. Furthermore the fact that Gordon Brown felt it necessary to embark on a world tour this week to try to garner support for his economic position prior to the G20 next week doesn't exactly inspire confidence.
No doubt the No 10 spin machine has already drafted the press release claiming the G20 as a success but I suspect the lasting image of that meeting is more likely to be the television footage of protesters making a nuisance of themselves rather than any major economic agreement amongst the participants.
After this month's fall in the best fixed rates now looks like a good time to lock into one, ideally one for at least 5 years.
