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Homebuyers face higher mortgage rates after gilts sell-off

Banks are likely to face increasing pressure to put up fixed mortgage rates after a sell-off in the government bond markets this week.

Analysts warn that the sharp rise in government bond yields, which have an inverse relationship with prices, will lead to higher mortgage rates on the high street.

Government bond yields on five-year gilts rose to 2.61 per cent yesterday - the highest level since February 26. Yields have risen from lows of 2.0 per cent since the start of March.

The rise in yields forces banks and building societies to raise fixed rate mortgages as these are calculated by using swap rates, which tend to move in line with government bond yields.

A swap rate measures the cost for a bank or building society to swap or switch from a floating rate to a fixed rate. Swap rates fixed over five years rose to 3.3 per cent yesterday from lows around 3 per cent at the start of March. Swap rates maturing over five years are typically used to calculate mortgages. Many analysts forecast government bond yields and swap rates will continue rising this year.

John Wraith, head of sterling rates product development at RBC Capital Markets, said: "Government bond yields and fixed mortgage rates are still relatively close to historic lows, but any material rise in government funding costs will have a knock-on effect on secured borrowing, putting significant pressure on households.

"This could have a serious impact on any economic recovery in the UK. The recent improvement in sentiment could easily go into reverse. It is too early to assume that the worst is over."

Gilts were sold off because of renewed worries over the vast amount of debt the government is taking on to stimulate the economy. This was reflected in a poor government bond auction yesterday as investors refused to take part because of worries over the £225bn in planned gilts sales this year.

While the property pundits, who are 'experts' when it comes to the macro-economic picture, may cheer a one month anomaly, the real danger lies ahead. Both the UK and US debt bonds are facing rising yeilds, which will severly restrict any 'green shoots'. Debt in the current and coming climate is a dangerous commodity, especially if it is tied to the UK economy. Getting yourself into debt and justifying it by budgeting on rates staying at historic lows is, simply, gambling.

Cash buyers of course, are, and always have been in a unique position. Those with big wads will no doubt be picking the distressed sales at bargain prices over next five years.

But (potential) leveraged property owners….well, you’ve been warned.

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Very interesting. This is where the real action is.

(It was obvious the government's "have-your-cake-and-eat-it" sleights of hand couldn't work forever. For example, you can't attract more capital to failing banks by cutting rates on savings.)

Yes, the subject of the divergence between base rates, Gilt yields and LIBOR hasn't been an issue for a while.

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Yes, the subject of the divergence between base rates, Gilt yields and LIBOR hasn't been an issue for a while.

Even if base rates stay low, while those on existing trackers will be OK, I can see the possibility of even relatively good credit worthy people with a low LTV getting a new tracker at Base plus 4%.

The answer? Why, printing more money to buy the gilts and so keeping yields down (or so they think).

But why stop there? Why not print money to buy shares to keep the stock market high, thus saving all our pensions.

How about those pesky repoed houses in the US. The economy can't recover while there is all that surplus stock that can't be sold. Why not Qu-Ease a bit more to support the prices there, so the economy can get "back on track".

Once you open pandora's box, it is very hard to close it again, the pressures on politicians are just too great.

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For the 2nd time this week, Ive found a VI with a sense of realism.

http://www.introducertoday.co.uk/News/Stor...e=news_features

Surprising house price rise should be treated with caution

Friday 29th May 2009

Michael White, Chief Executive of online mortgage adviser Email mortgages.com, commented:

“This 1.2% increase in UK house prices is surprising to say the least given the continued falls noted in other house price indices over the last few months. Even with this increase we would still counsel caution that this is not the start of any sustained improvement in house prices and this particular index may well continue to rise and fall over the months ahead. However, for the Nationwide Index at least, a ‘Spring Bounce’ does seem to have materialised over the past few months, but this upward trend may not continue during the rest of the year.

“There are a number of reasons why we should continue to be cautious about any continued increase in house prices. Recent figures issued by both the Council of Mortgage Lenders and the British Bankers’ Association showed particularly weak lending levels and lenders continue to show little appetite to lend, particularly at 90% LTV levels and above. Until this can be rectified many would-be purchasers will remain locked out of the market. Those looking for further evidence of green shoots will point to increased first-time buyer activity in the market, positive noises from estate agents and the recent Rightmove average asking price figures which also showed an increase, however the fact remains that it is very early days to be suggesting a full-blown UK housing market recovery.â€

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To assume that printing money willy-nilly will have no effect on the market is just plain asinine.

Both the UK and US are in the initial phases of a rate shock, as the rest of the world will not accept the 'free lunch' on which our governments are trying to sustain their own net consumption based economies. The artificially low rates over the past decade or so have created a huge imbalance and forced the population to speculate, which introduces the obvious downside of the market gamble: losing.

When all is said and done, in say five to ten years from now, we will see completely different financial landscape in the west. The rich and powerful will be even more so, middle classes will be wiped out and join the growing ranks of nouveau-pauvre. Good old European socialism will be the theme of the day. Thanks for the referendum Gordon!

There will be the lucky ones who escape the UK, but I think that a mass exodus in a 70’s style will not be as easily done this time around.

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For the 2nd time this week, Ive found a VI with a sense of realism.

http://www.introducertoday.co.uk/News/Stor...e=news_features

Surprising house price rise should be treated with caution

Friday 29th May 2009

Michael White, Chief Executive of online mortgage adviser Email mortgages.com, commented:

“This 1.2% increase in UK house prices is surprising to say the least given the continued falls noted in other house price indices over the last few months. Even with this increase we would still counsel caution that this is not the start of any sustained improvement in house prices and this particular index may well continue to rise and fall over the months ahead. However, for the Nationwide Index at least, a ‘Spring Bounce’ does seem to have materialised over the past few months, but this upward trend may not continue during the rest of the year.

“There are a number of reasons why we should continue to be cautious about any continued increase in house prices. Recent figures issued by both the Council of Mortgage Lenders and the British Bankers’ Association showed particularly weak lending levels and lenders continue to show little appetite to lend, particularly at 90% LTV levels and above. Until this can be rectified many would-be purchasers will remain locked out of the market. Those looking for further evidence of green shoots will point to increased first-time buyer activity in the market, positive noises from estate agents and the recent Rightmove average asking price figures which also showed an increase, however the fact remains that it is very early days to be suggesting a full-blown UK housing market recovery.â€

But he still refers to a rise as an 'improvement'.

This mindset seems to be set in stone in anyone who has any professional connection with the housing market.

Though I would be very glad to see any evidence to the contrary.

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Cash buyers of course, are, and always have been in a unique position. Those with big wads will no doubt be picking the distressed sales at bargain prices over next five years.

Oh dear, that doesn't sound like you then, back to the war bunker you go and stock pile tinned food eah.. <_<<_<

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This 1.2% increase in UK house prices is surprising to say the least given the continued falls noted in other house price indices over the last few months. Even with this increase we would still counsel caution that this is not the start of any sustained improvement in house prices and this particular index may well continue to rise and fall over the months ahead. However, for the Nationwide Index at least, a ‘Spring Bounce’ does seem to have materialised over the past few months, but this upward trend may not continue during the rest of the year.

Improvement?

What do they guage improvement against?

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