Wednesday 12 August 2009

Mortgage rates begin to take off

Are the banks profiteering or are they expecting higher inflation? I reckon it is the latter.....

LONDON (Reuters) - The cost of taking out a new fixed-rate mortgage rose to its highest level this year in July, extending a jump of around half a percentage point in June, figures from the Bank of England showed on Tuesday.

The rise partly reflects a shift in longer-term interest rate expectations but it also casts doubt over banks' willingness to take on new lending and the potential for a housing market recovery.

The average rate on a five-year 75 percent loan-to-value mortgage rose by 16 basis points to 5.7 percent, its highest level since October.

The average rate on a similar product fixed for two years rose by one basis point to 4.46 percent, its highest level since December, having jumped by 47 basis points in the previous month.

7 comments:

ict558 said...

Neither.

The increased interest rate reflects the increased risk on housing as an asset.

Anonymous said...

ict558: "The increased interest rate reflects the increased risk on housing as an asset."

Bingo!

Two components to the price of money, 1. loss of utility. 2. risk to return of capital.

Both feed into the rental (interest) rate.

As the economy tanks, the risk component rises.

Anonymous said...

Of course, inflation could be considered a very high risk of non return of capital. Prospect of inflation would drive the cost of borrowing up too.

Smith said...
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fajensen said...

Also, the recent and ongoing deluge of government bonds is soaking up capital so of course the interest on all lesser kinds of debt has to rise to attract buyers!

rate said...

The mortgage rate influences the transactions on real estate market, a really developed market, that involves a lot of money. The highest the rate is, the fewer the transactions are.

rate said...

And it's normal, like any other rate, mortgage rate is a price to be paid.