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Us 30-Year Mortgage Rates

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There's been much talk about this over the last couple of weeks:

http://ycharts.com/indicators/30_year_mortgage_rate

Compare that with this:

http://themortgagemeter.com/#/graphs

It looks to me like FLS and QE are simply mirroring US policy, with the end effect being the same. Except the US appears to be on the turn.

Now, does anyone think the US 30-year going up will have no effect on UK mortgage lending?

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The US mortgage rate rise is a reflection of the recent tick up in US treasury yields.

In financial market terms, the US 10-30 year treasuries are the ultimate risk free asset holding. If this rises anything that is deemed more risky (mortgages included of course) must go higher. The answer to your question lies in whether this is merely a blip or the start of a more sustained rise in US bond yields (ie will QE/FED intervention continue/be phased out etc). The UK cannot hold rates down if US rates rates quite simply because Sterling would most likely come under sustained depreciation in the medium term.

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http://www.bloomberg.com/news/2013-06-10/treasuries-fall-after-s-p-revises-outlook-of-u-s-.html

Treasuries fell, pushing 30-year (USGG30YR) bond yields to the highest in more than a year, after Standard & Poor’s boosted its outlook for the U.S. to stable from negative, adding to bets the Federal Reserve may slow monetary stimulus.

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From last week. If they are correct and if I'm reading this right, bets being placed to hedge against real estate losses, upcoming liquidation of mortgage paper, rising bond yields... some US normalisation must have implications for UK housing market or sterling, with the love of years of patching-up, and further inflating super house price bubbles.

Treasuries dropped on concern the biggest monthly surge in yields since December will prompt investors to sell government debt as a hedge against losses on mortgage bonds as borrowing costs climb to a 14-month high.

Yields on the 10-year note, a benchmark for mortgage and corporate loans, rose for a third day on the risk the increase will lead to an even bigger surge as investors place bearish bets to protect against housing-debt losses triggered by rising rates, a practice known as convexity hedging.

San Francisco Federal Reserve Bank President John Williams said last week a "modest adjustment downward" in the Fed's bond buying is possible as "early as this summer." The U.S. will sell $32 billion of three-year debt today.

It's the "liquidation of mortgage paper, which needs to be hedged because of convexity fears," said

more http://forexblog.oan...ge-hedge-sales/

Today http://www.bloomberg...-4-than-2-.html

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Hasn't stopped more drops in mortgage rates here this week:

http://themortgagemeter.com/#/latest_changes

as well as an increase in the number of mortgages available...

Is this something to do with the way funding for lending is structured. From the BOE website :

The price of each institution’s borrowing in the FLS will depend on its volume of lending to the real economy during the reference period. For banks or building societies maintaining or expanding their lending over that period, the fee will be 0.25% pa on the amount borrowed. After accounting for the cost of using the T-bills to borrow money, the total cost of funding for an institution using the FLS will be lower than current term funding rates, even for the strongest institutions. So as banks increase lending, their overall funding costs will fall. For banks or building societies whose lending declines, the fee will increase linearly, up to a maximum of 1.5% pa where lending decreases by 5% or more.

http://www.bankofengland.co.uk/publications/pages/news/2012/067.aspx

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Is this something to do with the way funding for lending is structured. From the BOE website :

The price of each institution’s borrowing in the FLS will depend on its volume of lending to the real economy during the reference period. For banks or building societies maintaining or expanding their lending over that period, the fee will be 0.25% pa on the amount borrowed. After accounting for the cost of using the T-bills to borrow money, the total cost of funding for an institution using the FLS will be lower than current term funding rates, even for the strongest institutions. So as banks increase lending, their overall funding costs will fall. For banks or building societies whose lending declines, the fee will increase linearly, up to a maximum of 1.5% pa where lending decreases by 5% or more.

http://www.bankofengland.co.uk/publications/pages/news/2012/067.aspx

Hmmm.

I'm wondering why any lender would not get in on this basically free money.

Also, lending over 75% LTV seems to be very much more expensive, which gives an idea of how much banks think property is overpriced...

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mortgage rates shifting up across the pond.

'As one might suspect this rapid rise in mortgage rates will wreak havoc on mortgage refinancing. And it did. I called a couple of my industry contacts and they state refinancings have plunged by 50% or more.

One contact says there has been spillover into new home applications, another has not seen that "yet".'

Read more at http://globaleconomicanalysis.blogspot.com/#sopLs2V5GLLKlvv0.99

'

Interesting, thanks.

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Hmmm.

I'm wondering why any lender would not get in on this basically free money.

Also, lending over 75% LTV seems to be very much more expensive, which gives an idea of how much banks think property is overpriced...

Well one reason might be the governments ability to move the goalposts at the drop of a hat.

I think the banks are quite wary. The government is all about smoke and mirrors. On the one hand they moan that the banks aren't lending enough, on the other they complain when they have to bail them out and give the bankers a hard ride. Government policy is pschisowhatsit. It is all about public opinion and not sensible economics.

If I was a banker I would be mighty concerned that one minute the government is trying to get me to loan out as much cheap cash as possible, and then the next starts moaning about irresponsible and greedy bankers when the bubble bursts and the public are looking for someone to hang it on.

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  • 246 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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