UK: THE ECONOMY - FIXED-RATE MORTGAGES BOOM IN SLUGGISH MARKET.

UK: THE ECONOMY - FIXED-RATE MORTGAGES BOOM IN SLUGGISH MARKET. - One of the few growth areas in the housing market recently has been in fixed-rate mortgages. While overall lending remains sluggish, within the total, fixed-rate advances currently account

by
Last Updated: 31 Aug 2010

One of the few growth areas in the housing market recently has been in fixed-rate mortgages. While overall lending remains sluggish, within the total, fixed-rate advances currently account for nearly half of all new mortgages, compared with one-fifth two years ago and virtually nothing before then. An increase in the number of borrowers on fixed-rate terms would bring the UK closer into line with other major economies. At present variable-rate borrowing accounts for over 80% of the stock of outstanding household debt in the UK, compared with around 20% in the US, Japan and Germany, according to Schroder Economics. But as more borrowers lock-in to fixed rates, base rate, the Government's main lever of monetary policy, will become less effective. Although this might lessen the Government's direct control over the economy, by limiting the direct effect on the housing market, it would remove some of the political costs attached to changes in interest rates. Moreover, as fixed-rate mortgages are tied to long-term interest rates, which in turn reflect expectations about inflation, a tough anti-inflationary stance might gain more widespread support as the public could then see the benefits in terms of cheaper mortgages.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today