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Gilt Yields Collapse

Thursday, 16 October 2014

Cost of Fixed Rate Mortgages to Fall Further

Ray Boulger, of leading independent mortgage adviser John Charcol, comments on the impact of today’s collapse in gilt yields.

“The main beneficiary, from an investment perspective, of the rapid mood change of the global economic situation and the consequent sell off in equities, particularly today, has been money piling into Government Bonds, pushing yields down. Following a steady decline in yields over the last few days the market has surpassed itself today with the largest single day fall for a long time.

“2 year gilt yields closed 8 basis points down today but the 5 year by a massive 19 basis points and the 10 year by nearly as much - 17 basis points. As a result the fall in gilt yields over the last month is now:

2 year:                  0.30% to 0.51%

5 year:                  0.57% to 1.23%

10 year:                0.57% to 1.95%

30 year:                0.45% to 2.74%

“Despite the recent sharp fall 2 year yields are still marginally higher than a year ago - 0.04% - but longer term rates have fallen substantially over this period as the market reassesses the likely timing of not only the first but also subsequent Bank Rate rises, plus the more benign inflation outlook. Over the last year the 5 year gilt yield has fallen 0.38%, with 10 and 30 year down more than twice as much, by 0.83% and 0.86% respectively, resulting in a significant narrowing of the yield curve.

“This has been reflected in swap rates, a key factor in lenders’ cost of funds when pricing fixed rates mortgages. As an example 5 year swaps closed today at 1.47%, compared with a recent peak of 2.29% only 3½ months ago; the 2 year swap closed at 0.94% and the 10 year swap at 2.04%.

“Only a few lenders have cut the cost of their fixed rates this week but as a result of not only today’s massive fall in the cost of funds, but also the cumulative effect of recent falls, all lenders have a lot of catching up to do in their fixed rate pricing.

“For example Accord announced a market leading 5 year fix of 2.59% at the end of last week, available up to 65% LTV with a £975 fee, but this is unlikely to remain the lowest rate for long. In fact I think there is a strong chance we will soon see some 5 year fixes challenging the previous lowest ever 5 year fix of 2.48%, which was available nearly two years ago!”


Borrowers should contact John Charcol on 0800 71 81 91 or visit

For further information, please contact:

Ray Boulger
020 7933 9691

07977 277431

Your initial consultation is obligation free.  There will be a minimum fee for our service of £495, of which £150 is payable when you apply, and we will retain the commission from the lender.  Alternatively, you can choose the fee only option which is typically 0.65% of the amount borrowed.  The precise amount will depend on your circumstances and loan amount, and will be discussed and agreed before you make an application.


John Charcol is a trading style of Towergate Financial (West) Ltd which is authorised and regulated by the Financial Services Authority.  Registered in England No: 02292688. Registered office: Towergate House, Eclipse Park, Sittingbourne Road, Maidstone, Kent ME14 3EN.

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