Market Rates 11 May 2012

Since the last newsletter inJanuary, Swap rates have bumped up and down and overall increased marginally.

  • 1-year money is up 0.02% at 1.03%
  • 2-year money is up 0.08% at 1.34%
  • 3-year money is up 0.12% at 1.43%
  • 5-year money is up 0.09% at 1.66%
  • 3-month Libor remains at 1.01%

 

Swap rates, when referred to in relation to mortgages, are the cost of raising fixed term funding on the money markets.

They reflect the market's expectation of what will happen to interest rates in the future and the most commonly referred to are two, five and ten year swap rates.

Swap rates heavily influence the cost of fixed rate mortgages and can be substantially higher than the Bank of England base rate or Libor (London Inter Bank Offered Rate). Libor does have an effect on swap rates, but swaps are, in the main, driven by the market and what traders expect to happen to rates over a given period of time in the future. Effectively swaps take a longer term view while Libor is a shorter term measure.

Rate Basket - 14 May 2012

Although Swap rates have remained level and 3-month Libor has decreased, lender rates have increased, on average, by almost 0.25% since January. Both fixed and tracker rates have increased.

rate_basket

FSA Looking Closely at Interest-Only Schemes, 29/09/2010

Wednesday, 29 September 2010 00:00 Written by Trevor

Skipton Building Society has become the latest lender to restrict its interest-only mortgages and will now only offer them for a maximum of 75% LTV.  
From October 1 any amount above 75% LTV must be on a capital and interest basis.

The Council of Mortgage Lenders recently warned that the Financial Services Authority risks killing off interest-only mortgages if it goes through with its Mortgage Market Review.

The FSA's view is that interest-only should be used only where there is a genuine repayment method in place. The consultation paper casts doubt on whether sale of the property should qualify as one.

The CML says the FSA paper is likely to lead to interest-only mortgages being withdrawn. Several lenders such as Lloyds Banking Group have in recent months tightened their interest-only policies.

In addition, the FSA has once again suggested that a cap on higher loan-to-value schemes (LTVs) could be implemented as part of wider regulatory reforms.

In a speech recently at Mansion House, Adair Turner, chairman of the FSA, told the audience it will be the job of the Financial Policy Committee to constrain credit booms before they end in busts.  He says part of this could be to impose limits on maximum LTVs.

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