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Cityam - Rate Hike Fear Drives Up Mortgage Cost

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http://www.cityam.com/article/1391132300/rate-hike-fear-drives-cost-mortgages

'BANKS are already starting to hike the rates on five-year fixed mortgages, new data has revealed, following hints from Bank of England governor Mark Carney that rates will rise in the coming years.

Figures seen by City A.M. show the five-year swap rate, used to calculate the loans, hit 1.7 per cent this month, up from below one per cent last spring according to the Legal and General Mortgage Club. The rise is a 65 per cent jump in relative rates.'

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Will interest rate rise again, who would think so. It is unexpected!

I think the most likely cause of rate rises will be where there is a large capital outflow...rates will rise to stem it,,, as it has in several Countries around the World very recently.

Taper means less cheap money looking for a carry.

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I got an email from ICICI Bank last night saying that their savings account rates were going up. The first such notification from anyone I've had in the past 5 years.

Something starting to happen?

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The Bank of England has recently resumed recording an average rate for 95% LTV 5-year fix mortgages in its database. It stopped doing so in October 2008 because hardly any lenders were offering such a product. The rate in December 2013 was 5.35%.

Meanwhile the 75% LTV 5-year rate reached a new low of 3.34% in December and the spread between 95% LTV and 75% LTV 5-year rates is now the largest ever. Up until the 2007 credit crunch there was hardly any difference between the two.

FixedRateMortDec2013.gif

Another notable stat from yesterday's BoE lending release was the average mortgage approval value for house purchase. This spiked by £12,400 in December and now stands at almost 170K. The highest figure in 2007 was 149K and in Dec 2008 it fell to 112K.

AvMortApproval1213.gif

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I think the most likely cause of rate rises will be where there is a large capital outflow...rates will rise to stem it,,, as it has in several Countries around the World very recently.

Taper means less cheap money looking for a carry.

The effect of the Taper is more psychological than material. $10/20bn a month is neither here nor there in the grand scheme of things - it's like a bedroom tax for banksters - but the big boys have had to adjust their forward positions in the expectation that their benefits might get cut even harder. The real game changer is what's going on in China. Lot of margin calls for the credit trusts and hedge-funds means they're having to liquidate positions all over Asia. We're talking about hundreds of billions of dollars/yuan being moved, marked down or run off along the usual ratlines to the Caymans and British Virgin Islands.

http://www.businessinsider.com/china-shadow-banks-2014-1

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The effect of the Taper is more psychological than material. $10/20bn a month is neither here nor there in the grand scheme of things - it's like a bedroom tax for banksters - but the big boys have had to adjust their forward positions in the expectation that their benefits might get cut even harder. The real game changer is what's going on in China. Lot of margin calls for the credit trusts and hedge-funds means they're having to liquidate positions all over Asia. We're talking about hundreds of billions of dollars/yuan being moved, marked down or run off along the usual ratlines to the Caymans and British Virgin Islands.

http://www.businessi...ow-banks-2014-1

So if not squeaky bum time yet for bankers, we are maybe at the slightly sweaty palm stage? Bedroom Tax for bankers is a good way of putting it BTW!

Of course smart bankers will always follow the money and make profit? Or could we see things start to unwind really badly (for them)?

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The effect of the Taper is more psychological than material. $10/20bn a month is neither here nor there in the grand scheme of things - it's like a bedroom tax for banksters - but the big boys have had to adjust their forward positions in the expectation that their benefits might get cut even harder. The real game changer is what's going on in China. Lot of margin calls for the credit trusts and hedge-funds means they're having to liquidate positions all over Asia. We're talking about hundreds of billions of dollars/yuan being moved, marked down or run off along the usual ratlines to the Caymans and British Virgin Islands.

http://www.businessi...ow-banks-2014-1

So if not squeaky bum time yet for bankers, we are maybe at the slightly sweaty palm stage? Bedroom Tax for bankers is a good way of putting it BTW!

Of course smart bankers will always follow the money and make profit? Or could we see things start to unwind really badly (for them)?

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Cityam are Citeh lobbyists.

They promote higher rates for their rentier constituency at every opportunity.

Bit like ZH and gold.

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I think the most likely cause of rate rises will be where there is a large capital outflow...rates will rise to stem it,,, as it has in several Countries around the World very recently.

Taper means less cheap money looking for a carry.

Capital flows into countries where house prices are increasing doesn't it? At the time of the HTB2 budget last March GBP was 1.49 USD it's up 10% to 1.65 since then. Osborne is telling the world to park money in our housing.

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As economic logic no longer seems to apply and interest rates are where they are to boost a political parties chance of winning the next election ... shouldnt we expect a rate rise or 2 before next years election as a bride to pensioners to vote for the not very Conservative party.

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The divergence between 95 and 75% is interesting - the banks increasingly factoring in a 25% correction before they start taking loss on the asset.

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Another notable stat from yesterday's BoE lending release was the average mortgage approval value for house purchase. This spiked by £12,400 in December and now stands at almost 170K. The highest figure in 2007 was 149K and in Dec 2008 it fell to 112K.

I'm confused about this number. If the average mortgage approval is ~ £170k and the average house price is supposed to be ~ £175k, does this mean that:

the average LTV is 97%?

the average house price is not worked out using current sold prices (in a way which underestimates the average house price relative to the average sold price)?

such an enormously disproportionate number of lower-priced houses are being bought outright (presumably not by owner-occupiers) that the two statistics are off to this extent?

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one word LONDON

average price in london is 350 to 400k and I guess average mortgage in london is 250k and above (they advertise 300k to 350k as 'first time buyer') so averaging two different market (london and SE v rest of UK) will give odd figures

So it's the second option? In other words the average house price isn't a simple average of recently sold prices, but rather if for instance London has a higher rate of 'churn' in relation to number of dwellings, the impact of the average of the recently sold London prices will be weighted down (to a level proportionate to the local housing stock and not the absolute local number of sales)? And this type of weighting isn't applied to the average agreed mortgage figure?

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I don't know the way in which they calculate the 'average', but you can't really buy anything in london for 170k so mortgages in london will always be much higher than elsewhere in the country and so a large majority of london mortgages are IO to make them 'affordable'. IIRC George Osborne's mortgage is £2m so typical (OK this is non typical) London mortgages and HPI figures make massive differences to 'average' figures. Which is why at the moment they love average figures but if london falls or slows, as is happening suddenly they talk about prices across the UK 'improving'.

Fixed

I don't know the way in which they calculate the 'average', but mortgages in london will always be much higher than elsewhere in the country which means you can't really buy anything in london for 170k

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I'm confused about this number. If the average mortgage approval is ~ £170k and the average house price is supposed to be ~ £175k, does this mean that:

the average LTV is 97%?

the average house price is not worked out using current sold prices (in a way which underestimates the average house price relative to the average sold price)?

such an enormously disproportionate number of lower-priced houses are being bought outright (presumably not by owner-occupiers) that the two statistics are off to this extent?

The average (mean) house price in the UK is roughly 240K. The median house price is much lower, around 185K. The 'average' house price as published by Nationwide, Halifax, and Land Registry is more like the median than the mean (I'm generalising to explain the apparent anomaly you cited - it's actually more complicated than this).

Similarly the average (mean) mortgage approval for house purchase is around 170K. The median mortgage approval will be considerably lower.

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Will the pressure cooker last till next general election? Or will it blowout before and Labour will be laughing all the way to the election day.

If labour get in I will be laughing all the way to the next general election. That's like rehiring a guy who stole all the petty cash but who claims 'I've changed, honest'. Labour in their dying days were a confused mess of contradictions and poor foresight. How short people's memories are...

Ditto tho, lots of talk about whether it's finally end game lately...but it never seems to end... If Tories get re-elected, surely they'll just keep trying to prop the market up to secure subsequent re-election in 2020, as would Liebour?

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If labour get in I will be laughing all the way to the next general election. That's like rehiring a guy who stole all the petty cash but who claims 'I've changed, honest'. Labour in their dying days were a confused mess of contradictions and poor foresight. How short people's memories are...

Ditto tho, lots of talk about whether it's finally end game lately...but it never seems to end... If Tories get re-elected, surely they'll just keep trying to prop the market up to secure subsequent re-election in 2020, as would Liebour?

You can add the LibDems too, so that leaves UKIP. The more votes that UKIP secure, the more the established parties will have to take notice.

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The Bank of England has recently resumed recording an average rate for 95% LTV 5-year fix mortgages in its database. It stopped doing so in October 2008 because hardly any lenders were offering such a product. The rate in December 2013 was 5.35%.

Meanwhile the 75% LTV 5-year rate reached a new low of 3.34% in December and the spread between 95% LTV and 75% LTV 5-year rates is now the largest ever. Up until the 2007 credit crunch there was hardly any difference between the two.

FixedRateMortDec2013.gif

Another notable stat from yesterday's BoE lending release was the average mortgage approval value for house purchase. This spiked by £12,400 in December and now stands at almost 170K. The highest figure in 2007 was 149K and in Dec 2008 it fell to 112K.

AvMortApproval1213.gif

Thanks FT. Your responses are always excellent.

Ignore the spread between 75 + 95 mortgages.

What about the spread between both and base rates - 500 bps + 220bps.

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