Looking ahead, others in the industry said it does not look like things are going to ease up anytime soon.
John Charcol’s mortgage technical director, Nicholas Mendes said it is likely more lenders will continue to pull and reprice rates before the Bank of England decides on the direction of the base rate next week.
“Markets are now pricing in an interest rate rise by half a percentage point this month after wages grew at the fastest pace in nearly two years and employment hit a record high,” Mendes said.
“Wage growth is a key indicator on the state of inflationary pressures, with the latest figures adding to mounting evidence that price growth will remain stubbornly high in the coming months.
“This has resulted in further increase in swap rates, forcing lenders to reprice,” Mendes explained.
Pensions
On the pensions front, last week a monitor of how various pension scheme strategies are performing on their journeys to self-sufficiency by Broadstone, found that rising gilt yields through May reduced the present value of liabilities by 6 per cent in the month.
Commenting on this, Broadstone’s head of trustee services, Chris Rice said scheme managers have been able to communicate requirements to clients clearly because while the gilt yield movements have been quick on a historic level, the pace has been broadly steady.
“This does remain a volatile period and the question for underhedged schemes would be if now is the right time to de-risk their investment strategy. With expectations of the persistent inflation falling over the year, gilt yields may yet fall back down, undoing the funding improvements,” Rice said at the time.
Since then, gilt yields have not yet fallen back down but others in the sector have said the spike seen this week will have less of an impact on pension schemes if it is eventually assumed that rates will revert to the level previously expected.
This is the view of former pensions minister and LCP partner, Steve Webb who said the first thing to bear in mind in relation to gilt yields and pensions is the long-term interest rate, not the short-term ones.
Secondly, Webb noted that for DB schemes, changes in interest rates can affect both assets and liabilities.
“Broadly speaking, when interest rates go up, bond values go down, so DB assets have been falling as interest rates have been going down,” he explained.
“But liabilities fall as well when interest rates rise, because the cost of meeting future pension promises is lower today,” he added.
This week’s activity in the gilt market may also potentially lead to lower CETV values and potentially, fewer requests for DB transfers.
