What the falling pound means for your mortgage
Since the EU referendum, the value of the pound has fallen by around a quarter. As well as hitting holidaymakers - you now get fewer dollars or euros for your money - the fall has also had a knock-on effect on the money markets.
So, just how does the tumbling pound affect your mortgage?
Over recent weeks, the price of the pound has tumbled, causing US shares to rise and bond prices to fall. This means that shares in popular dollar-denominated stocks and sectors are suddenly more expensive.
At the same time, British government bonds have also fallen in price. This hits investors in bond funds but has other knock-on effects, including potentially pushing up the cost of finance for mortgage lenders.
One side-effect of the fall in the value of sterling in the last couple of weeks has been a rise in interest rates. While the actual interest rates offered to borrowers have yet to increase, 'wholesale' rates on the money markets have been rising.
If this rise in wholesale rates is sustained, savings and mortgage rates can be expected to follow suit. Lenders may be forced to withdraw their cheapest products and re-price their mortgage deals at higher rates.
'Swap' rates, which drive the cost of fixed-rate mortgages, have also risen in recent weeks. For example, the five-year rate fell to just above 0.4% in August but has since risen to about 0.7%. The likely cause for this is overseas investors selling their gilts in order to limit losses from falls in the value of the pound.
Rising gilt rates tend to have a knock-on effect on other rates. Mortgage rates are usually expected to climb in response to rising swap rates.
However, strong competition between lenders for mortgage business is helping to keep the cost of the best deals low, despite a rise in the price that banks have to pay to 'buy' funds to lend as mortgages.
Mortgage expert David Hollingworth says: “Swap rates did plummet following the cut in bank rate in August, and, although still very low, they have certainly lifted recently. Although it would normally herald upward pressure on mortgage rates we continue to see lenders cutting, although that may in part be due to the fierce competition.”