Student lender pulls fixed rates as money market spikes

AFS Team·3 July 2013·3 min read
Student lender pulls fixed rates as money market spikes
Volatile money markets have triggered at least one specialist buy to let and student house lender to pull fixed rate mortgage deals.

Paragon Mortgages was spooked by a sudden spike in mortgage swap rates – the rate mortgage lenders pay to borrow money to lend on to property owners.

The five-year swap rate has doubled in a month – from 0.887% at the end of May 2013 to 1.787% during the last week of June 2013.

In general, money markets fear official interest rates in the US, UK and Europe may start climbing sooner than expected as central banks look at tapering off quantitative easing in 2014.

Deputy governor Paul Tucker is concerned mortgage borrowers are set to struggle with their finances as rates rise from the current record low of 0.5%, where they have sat since March 2009.

The smart money around the markets is on rates sitting around this level until after the general election in 2015, but Tucker hinted rates could rise earlier if economic conditions called for action.

He explained a rate of 1.5% would drag 9% of mortgage borrowers into difficulties, while a rise to 2.5% would be difficult to handle for 20% of borrowers.

Paragon director of mortgages John Heron said: “We review products on a monthly basis and in light of that much higher swap rates it has been sensible to withdraw that current fixed-rate range and see where these swap rates settle down.

“It is just the fixed-rates we have withdrawn and we will keep an very close eye on swap rates and bring some new products to the markets when we are sure things will settle down.”

Meanwhile, The Mortgage Works (TMW) has gone against market thinking by offering a 2.49% fixed rate for buy to let borrowers – the lowest ever mortgage interest rate offered by a Nationwide Building Society brand.

However, despite looking good, the rate is for a special few with a 40% deposit and who are willing to stump up a 2.5% completion fee.

Santander offers the next best buy to let rate - 2.59% fixed with a 2.5% fee.