I'll cut to the chase.  If you are looking at a new mortgage or a remortgage in the coming weeks and months then you really do need to be alive to the general macro environment and in particular the spread between 2 and 5 year products.

We may all know that the UK base rate is 0.10% since broadly this time last year.  Why? Well we have all seen the utter economic [not to mention human] devastation from the virus.  Retail is almost exclusively online, shopping malls [if you can remember what they are] are literally tumble week, hospitality hasn't been open for any consistent period for a year and airlines and travel is down at least 80%.  

The pandemic was so fierce that demand for crude has plummeted [i.e. no one was driving, business was closed and airlines mothballed]. No one needed or wanted oil, so the price of oil keeps going down. Indeed last year on the last day of the option expiry for the front month i.e. the last day you can get out of the contract, when you don’t want or aren’t equipped to accept a delivery of physical oil. [You probably have nowhere to put it!]

With time short, you need to get out of that contract now so you don’t have to deal with an actual barrel full of oil come May prices actually turned negative. Negative prices mean you are actually paying the person with the oil to not give you the oil. In normal times there would be logistical and physical capabilities to buy extra oil and store it until it can be sold for a profit. This time last year, apparently, there’s so much unused oil already in storage that there isn’t enough room to store the oil they’d receive from the contracts expiring.

Yesterday crude oil traded above $70.  Think about that for a second.  We are literally just emerging from an economic meltdown and oil is already trading up around $70.  Yes partly because of continued supply constraint from OPEC but also because some of the supply that was taken away by falling prices in 2020 means and this supply can't be turned on in a heart beat.  Its not just crude oil, industrial metals are trading at multi year highs, as are some agricultural staples like wheat.  Pork has doubled in the last year.

Why do you care? Well inflation and the market is starting to price this into the longer end of the curve.  UK 10yr Gilts settled at the end of 2020 around 0.20% we are now up at 0.70%. Still incredibly low on historic metrics and we still have a long long way to go in the economic recovery BUT...

There is an absolute wall of stimulus and pent up demand waiting to get involved throughout 2021 and it seems to this commentator that when the usual spread seen in the mortgage market between the most popular product - the 2yr fixed rate - and the 5yr fixed rate of around 0.20% is that going to last?