June 13, 2014 8:54 pm

Homebuyers told to lock in fixed-rate deals

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UK property for sale©Bloomberg

Mortgage brokers are urging homebuyers to lock in fixed-rate deals quickly after Mark Carney’s warning of an early interest rate rise prompted investors to predict that the first hike will come in time for Christmas.

Mr Carney sent a strong signal to homeowners and businesses on Thursday night, when he warned rate rises “could happen sooner than markets currently expect”. The consequences of the Bank of England governor’s speech reverberated through financial markets on Friday, with sterling and the cost of government borrowing jumping.

Interactive Timeline: Mark Carney on road to rate rises

Bank of England on bonuses

Bank of England govenor Mark Carney’s speech on Thursday marked a significant chance in his tone on likely interest rate rises

Ray Boulger, senior technical director at mortgage broker John Charcol, said: “We’ll see most lenders increase the costs of their fixed rate mortgages – I’d certainly expect some movement over the next two weeks.”

Nigel Bedford, senior partner at Large Mortgage Loans, said the expectation of early rate rises would push up demand for longer-term fixed rate mortgages, meaning banks and building societies would use up the funding they put aside for fixed deals.

“There will be further increases in fixed rates in due course, Mr Bedford said.

There were big market moves following the governor’s Mansion House speech. Before his remarks, interest rate futures markets showed investors were expecting the first rise in April 2015; after Mr Carney’s speech, the date moved forward to the end of the year.

With the BoE most likely to increase interest rates in the same month as it publishes its quarterly inflation report, many economists forecast the BoE would act in November.

George Buckley, chief UK economist at Deutsche Bank, noted the lack of caveats and usual cautious central bank language in Mr Carney’s words as he brought forward his own forecast of a rate rise. “The governor has made it very clear that we should be gearing up for a rate rise later this year”. he said.

Mr Carney stressed, however, that he hoped any rate rises would be “gradual and limited”, leading some mortgage brokers to advise customers not to rush into any action.

John Cridland, CBI director-general, also said that most companies “would be able to cope” with a rate rise this year.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “There is no need to panic. Fixed rates have already gone up and you will pay more now for one than you would have done six months ago . . . but fixed rates are still very cheap historically.”

The likelihood of more expensive mortgages and other loans raised the prospect of some household distress, but business leaders predicted the economic recovery would be able to withstand a first rise now expected to come in November.

Sterling moved closer to five-year highs on Friday morning with the pound’s value rising from 1.683 dollars to trade just shy of 1.7 dollars. The European single currency also tumbled against sterling with one euro worth less than £0.80 for the first time since November 2012.

The government’s borrowing costs rose 0.14 percentage points for 2-year gilts as bond markets also priced in earlier rate rises.

The chancellor was buoyed, however, by Standard & Poor’s, which upgraded the UK credit rating on Friday evening to AAA with a stable rather than a negative outlook.

X-Ref: Insider, S&P story

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