Fixed rate mortgages set for imminent increase

"There is still some comfort for those borrowers looking for a tracker rate as there is no reason for lenders to increase tracker rates just yet, based on the cost of funds; 3 month Libor has been slowly edging lower and is currently at its all time low of 1.26%.  Its margin of 0.76% over Bank Rate is the lowest it has been for several months. However, lenders with particularly competitive tracker rates may still increase them if they want to reduce the volume of applications they receive. For example, Woolwich is tomorrow increasing the cost of one of its trackers by 0.5% - a particularly competitive and indeed market leading offset lifetime tracker at Bank rate + 1.99%.

Short dated gilt yields rose sharply yesterday, with the yield on 2 - 4 year gilts up by around 0.14%, although there has been a small bounce back today. Swap rates rose even more with 2 and 3 year swaps up by over 0.2% and 5 years up by 0.14%, whereas the 10 year rate increased only marginally by 0.02%. Gilt yields and swap rates reached their recent lows on May 14, the day after the publication of the Bank of England's Quarterly Inflation Report, and in just 3½ weeks since then 3 and 5 year swap rates have surged by a massive 0.62%.

Boulger continues, "This situation has some parallels with the US.  The yield on the US benchmark 10 year Treasury Bond bottomed out on 15 January this year at 2.14% but less than 4 months later closed a whopping 1.74% higher than this yesterday at 3.88%. As a consequence rates on a US 30 year fixed rate mortgage, the most common type of mortgage in the US, have risen by 0.45% in the last month alone to around 5.45%, compared to the recent low of 4.85%.