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Fixed Rate Mortgages Set For Imminent Increase

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

Ray Boulger of leading UK mortgage broker John Charcol said, “Yesterday we saw another sharp rise in swap rates, following closely on from other recent increases. The scale of the increase was large enough to be the straw that breaks the camel’s back and as a result I expect several lenders to increase the cost of at least some of their fixed rate mortgages over the next few days. With most borrowers (including around 80% of our clients) currently choosing a fixed rate mortgage, if interest rates continue to rise then the current recovery in the housing market, which is based primarily on much improved affordability as a result of the combination of lower house prices and lower interest rates, may well wobble. The message for borrowers wanting to take a fixed rate is clear; get in now or miss out on the current relatively low rates.

“There is still some comfort for those borrowers looking for a tracker rate as there is no reason for lenders to increase tracker rates just yet, based on the cost of funds; 3 month Libor has been slowly edging lower and is currently at its all time low of 1.26%. Its margin of 0.76% over Bank Rate is the lowest it has been for several months. However, lenders with particularly competitive tracker rates may still increase them if they want to reduce the volume of applications they receive. For example, Woolwich is tomorrow increasing the cost of one of its trackers by 0.5% - a particularly competitive and indeed market leading offset lifetime tracker at Bank rate + 1.99%.

Short dated gilt yields rose sharply yesterday, with the yield on 2 – 4 year gilts up by around 0.14%, although there has been a small bounce back today. Swap rates rose even more with 2 and 3 year swaps up by over 0.2% and 5 years up by 0.14%, whereas the 10 year rate increased only marginally by 0.02%. Gilt yields and swap rates reached their recent lows on May 14, the day after the publication of the Bank of England’s Quarterly Inflation Report, and in just 3½ weeks since then 3 and 5 year swap rates have surged by a massive 0.62%.

Boulger continues, “This situation has some parallels with the US. The yield on the US benchmark 10 year Treasury Bond bottomed out on 15 January this year at 2.14% but less than 4 months later closed a whopping 1.74% higher than this yesterday at 3.88%. As a consequence rates on a US 30 year fixed rate mortgage, the most common type of mortgage in the US, have risen by 0.45% in the last month alone to around 5.45%, compared to the recent low of 4.85%.

“These changes in both swap rates and short dated gilt yields happened at a time when the Bank of England’s Quantitative Easing programme is designed to drive down yields and it presents the Prime Minister, The Chancellor and the Bank of England with a major problem. Having pushed Bank Rate down to almost zero the strategy is to boost the economy by reducing the cost of longer term borrowing. This sharp upward movement in market rates demonstrates that the Government is impotent in this area and has lost control of interest rates except at the very short term end.â€

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Can't see the BOE haveing scope to increase rates in this environment. Imagine the effect it would have on lending.

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Can't see the BOE haveing scope to increase rates in this environment. Imagine the effect it would have on lending.

Failed gilt auction. That is the concern - what with record amounts of borrowing - and that means higher rates.

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The BOE know full well what is going on.

They lowered IRs simply to give the banks an excuse to screw the savers. They reduced rates under the pretence of stimulating the economy and helping home owners.

All they have done is screw the savers whilst turning a blind eye to the increasing mortgage rates.

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The BOE know full well what is going on.

They lowered IRs simply to give the banks an excuse to screw the savers. They reduced rates under the pretence of stimulating the economy and helping home owners.

All they have done is screw the savers whilst turning a blind eye to the increasing mortgage rates.

I wondered about this.

However, if it is true. Why is it that a small mutual BS, which did not partcipate in risky loans, hasn't been able to clean up in the savings market?

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Can't see the BOE haveing scope to increase rates in this environment. Imagine the effect it would have on lending.

Embarassing , you've been here nearly 3 years and learnt almost nothing....still feeling bullish nohpc like in the old days ?

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I wondered about this.

However, if it is true. Why is it that a small mutual BS, which did not partcipate in risky loans, hasn't been able to clean up in the savings market?

They were all at it, eventually, dragged into the pit. Just like quite a few hapless FTB's who responded to the gun at the head buy now or forever be priced out shit - what a disgusting tactic that one was, that really is so low there are not the words to describe it.

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They were all at it, eventually, dragged into the pit. Just like quite a few hapless FTB's who responded to the gun at the head buy now or forever be priced out shit - what a disgusting tactic that one was, that really is so low there are not the words to describe it.

And Tesco ?

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I wondered about this.

However, if it is true. Why is it that a small mutual BS, which did not partcipate in risky loans, hasn't been able to clean up in the savings market?

Yep, as OnlyMe has stated, they were all at it.

There is not one BS in the country that is not up to its eyeballs in dodgy mortgage debt. Every bank and BS is technically bankrupt and the only way they can recapitalise is by 'nicking the savings of the prudent.

Everything that is going on in the economy now, both in the US and the UK, is aimed at screwing the prudent savers. Screw them with next to nothing savings rates, screw them with inflation, screw them by trying to lure them into a bear trap stock market rally.

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I wondered about this.

However, if it is true. Why is it that a small mutual BS, which did not partcipate in risky loans, hasn't been able to clean up in the savings market?

Because bad money drives out good.

Pre-bust, bad money was being lent into existence to every NINJA and his dog who applied.

Post-bust, vanishing money has been lent from our future taxes and our savings (the latter being QE).

The opportunity to clean up was stifled by the banking rescues: the bust banks weren't eliminated from the marketplace. Though some banks have indeed picked up distressed assets (Santander, Ing and Nationwide spring to mind) and are offering some of the best savings rates.

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If swap rates go higher this tells us that people expect money to be worth less than it is now, which means inflation. If they are right it could be the end of the crash and we move into the hyperinflation phase. The banks will start lending again.

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If swap rates go higher this tells us that people expect money to be worth less than it is now, which means inflation. If they are right it could be the end of the crash and we move into the hyperinflation phase. The banks will start lending again.

Not necessarily, though it is part of the picture.

There is also a risk premium and the markets seem to be adjusting this upward.

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