Rates are typically priced off the market curve – where investors think Bank Rate will be in the future – and so when that curve jumped after the mini-Budget, mortgage rates inevitably increased.
“I would hope that is now calming,” Bailey said, as the curve is falling, and becoming more predictable.
He continued: “That [greater market certainty] should be reflected through into mortgage rates.
“These things have to be symmetrical in that sense.”
The governor of the Bank of England has warned the money markets that interest rates will not rise as high as they have bet – and issued a rebuke to lenders that mortgage costs do “not need to rise as they have done”.
Bailey said that borrowing costs will peak at a lower level than traders are predicting, even as he announced the biggest interest rate rise in 30 years.
The Bank of England put rates up by 0.75% to 3% yesterday. However, Bailey said that increasing rates to the 5.25% level recently expected by markets would trigger a two-year recession and cut household real incomes by £800 in 2023.
He said this should serve “as a reminder that we should not increase Bank Rate too far”.
Bailey added: “We can’t make promises about future interest rates but based on where we stand today, we think Bank Rate will have to go up by less than currently priced in financial markets.”
Bailey also suggested fixed mortgage rates had peaked.
“Rates on new fixed term mortgages should not need to rise as they have done,” he said.