Priced in UK interest rate increases and impact on UK mortgages
#pompompricing #ukmortgages - exploring the impacts of UK interest rates, overnight index rate swap and inter-bank lending on UK mortgages
In light of lower than expected inflation1 last week, banks adjusted their anticipated interest rate (on how much they would lend to each other unsecured loans) overnight (as in just one night).
This rate tells us how much liquidity and risk is there in the market2 and also what the banks anticipate what rate they will charge each other for borrowing overnight. This rate can at least tell us what do banks think what rate they will lend to each other which can then tell us whether they anticipate to increase interest rates for loans they extend (including those rates for residential mortgages).
The graph, based on data on what banks will lend to each other in the future3, above suggests banks anticipate to increase the rate of borrowing to each other from this autumn all the way until the summer of next year. Also the anticipated interest rates are likely to be around +0.5% to +0.69%.
What does this mean for home buyers?
It is worth considering for home buyers to appreciate an increase in interest rate rises which could likely lead to less mortgage demand, meaning buyers should make offer prices to reflect the impacts of these rate rises on anticipated UK house prices.
https://www.reuters.com/world/uk/uk-june-inflation-rate-lower-than-expected-79-2023-07-19/
https://www.linkedin.com/pulse/overnight-index-swaps-explained-prathuish-p-gopinathan/
https://www.bankofengland.co.uk/-/media/boe/files/statistics/yield-curves/latest-yield-curve-data.zip