Last week we wrote that a lender carrying a margin it did not intend to carry has only one plausible correction, and that this one looked likely to arrive quickly. It arrived within five days, and it was the largest single reprice we have recorded.
The direct lender we follow most closely replaced its entire five-year limited-company range again — the second whole-range replacement in a fortnight, where before this month we had gone whole quarters without one. The moves were between roughly twenty and thirty basis points, weighted toward the low-fee end, with the largest increase on the product carrying the biggest percentage fee. The broker-panel lists refreshed in the same week for the first time since 1 September, and told a similar story with less drama: around fifteen to twenty basis points on the five-year seventy-five per cent products, upward on nearly everything that moved. One exception is worth noting, because it is the second time we have seen it. The cheapest five-year product on the panel, the one carrying a large percentage fee, did not move at all. Big-fee products appear to be where lenders are choosing to hold a headline, which is a familiar enough tactic but worth remembering when comparing a headline rate against a fee-free one.
So the prediction was right. What we did not expect was the timing of the other half.
Over the same days, the swap curve fell. The five-year is now around 4.67%, the three-year a little over 4.6%, the ten-year around 4.85%: roughly eight basis points lower on the five-year than the reading we took a week ago, and the first fall we have recorded since the sell-off began. The gilt market has steadied. None of it is a reversal — the curve is still well above where it sat in August, and comfortably above the late-July level we used as a reference all summer — but the direction changed.
The result is that this week’s reprice was set against a funding cost that had already begun to retreat. This is not lenders being perverse. Product pricing is decided days or weeks before it appears, against the curve as it was when the decision was taken, and what we are watching is a reprice aimed at last week’s swap levels landing in a week that no longer has them. The lag we have spent two months describing cuts in both directions, and this is the first time in this cycle we have seen it cut in our favour.
The honest consequence is that we now know less about next month than we did a fortnight ago. If the curve keeps retracing, some of this week’s increase will look overdone and a quiet partial reversal becomes plausible, though lenders are consistently slower to give a rate back than to take one away. If the retrace stalls, this pricing is simply the new level. The Budget at the end of October is the obvious catalyst and it is six weeks out, which is longer than most product ranges now survive.
A note on sources, following last week’s. Our primary swap source has moved its paywall: the two-year point is visible again and the one-year has gone behind it instead. We have a two-year reading for the first time in a month, around 4.5%, but no comparable prior reading to measure it against, so it tells us a level and not yet a direction. The secondary source has still not refreshed since mid-August and we are no longer treating it as live. On the other hand, this week’s fall in swaps and this week’s rise in product pricing came from entirely separate sources moving in opposite directions, which is at least the kind of disagreement that is hard to explain by extraction error.
The practical reading is unchanged in substance and stronger in degree. Pricing secured before the summer continues to look better than anything currently on the shelf, and the gap widened again this week. For a short fix maturing in the next year or two, nothing this week improves the picture: the level to budget for is still meaningfully above what such a fix is paying now, and the case for planning around a higher rate rather than waiting for a better one has not weakened. The change is only that the range of plausible outcomes has widened at both ends, and we would rather say so than pretend this week resolved anything.