With an important vote on Britain’s place in the EU coming up on 23 June 2016 (the so called ‘Brexit’ referendum), the money markets are getting skittish.
Financial markets hate uncertainty and the cost of credit tends to become unstable around perceived risks to the economy. This perception of risk is especially keen around Brexit, with several senior economists expressing their concerns.
“Families would pay the price”
At an IMF conference in Washington DC last week, Chancellor George Osborne said:
“The overwhelming view of the experts here in Washington is that if Britain leaves the EU, prices would go up and there would be instability in financial markets.
“That means it’s likely that mortgage rates would go up, families would pay the price of Britain leaving the EU.”
Though bear in mind, along with his position as custodian of the UK economy, Osborne is also a prominent supporter of the Britain Stronger in Europe campaign. So he is likely grinding a political axe as much as diligently issuing economic warnings.
Bank of England steers a steady course
The biggest influence by far on mortgage rates is the Base Rate of Interest set by the Bank of England (BoE). This rate has been at historic lows since 2009.
The BoE have said they expect to see an “extended period of uncertainty” if Britain left the EU, leading some commentators to speculate that interest rates might be cut even lower, to help the economy deal with any strains around the referendum.
But the BoE have said they are committed to their stance that interest rates will rise some time in the next few years (currently tipped to happen at the end of 2016 or early 2017).
Is the cost of credit just rising?
Quoted interest rates (the rates available to the public) are no longer falling as fast as they did last year, and the lowest ever mortgage rates of under 1% quietly disappeared from the market in February 2016.
This is could well be result of the money markets not seeing the cheap swap rates (the price banks sell money to each other at) that started last year.
Concerns about Brexit might have had something to do with this, but the downbeat forecasts about global economy coming in since the end of 2015 have been making the financial markets jumpy for a while.
Despite all this, it’s worth noting average mortgage rates continue to skirt around all time lows.
The disappearance of rates under 1% are likely just a result of fixed rates becoming so cheap (currently you can fix a rate as low as 1.22% for two years) that they make flashy discounts on variable rate mortgages seem relatively less desirable. Leading to lenders removing them from the market.
So is it a good time to fix a mortgage rate?
Rates are exceptionally low compared to their levels a few years ago, so fixing could be worthwhile.
However, fixing your mortgage rate is always something of a gamble, if you fix at the right time you could be significantly better off should rates rise. But if they do go down further, you could be left relatively out of pocket.
Read more in our guide on when to fix a mortgage rate.