- The Other Reason The BOE Panicked: 26% Of All UK Mortgages Are Variable Rate And Set For Imminent Repricing
by Tyler Durden, https://www.zerohedge.com/
Earlier today, we described the main reason why the BOE panicked – which, with billions in pensions set to suffer catastrophic losses absent an intervention, perhaps merited the latest central bank bailout. There is another reason why the central bank stepped in.
It’s not just the US where housing affordability is the worst in history: in a note from DB’s Jim Reid, the bank’s head of thematic strategist writes that the bank’s UK Homebuilding equity research team pushed out some fascinating insights into what the recent UK issues could do to housing affordability.
The note served for Reid’s latest Chart of the Day, and shows the ratio of UK mortgage payments to take home pay. The colored lines and numbers look at where this would go if you moved rates up in 50bp increments, relative to the last published version of this chart which used an average new mortgage rate of 1.9% in Q2.
For reference, Lloyds Bank were offering a 2yr fixed rate last night at 4.95%, assuming a 60-75% loan-to-value ratio, which goes up to 5.29% for 90-95% loan-to-value.
So at these levels, this would send affordability to worse levels than that seen during the GFC and within a couple of percentage points of the peak in the late 1980s/early 90s when the UK saw a savage house price crash. The report (available to pro subscribers ) also shows that in aggregate, we’re already around those levels for London.