Europe’s central bank is in a tight spot when it comes to rates and mortgages.
That much we know.
The ECB can’t raise rates without causing at least a degree of pain for home owners in the periphery — where most of local leverage is based on floating rates. Which means when interest rates go up, so do payments due on mortgages.
But what about the ECB’s British counterpart at the Bank of England?
The UK’s Financial Services Authority publishes a quarterly set of mortgage stats. The last set had 68 per cent of outstanding mortgage balances on variable rate deals, which was a new record. (They’ve grown from about just 49 per cent in Q2 2008).
Legal & General says it’s much more.
From a March presentation on the Old Lady’s policy dilemma:
What accounts for the discrepancy? The Times quotes a theory by L&G’s Tim Drayson. The FSA data is taken from lenders themselves, he says, and “perhaps the banks are not properly reporting all the automatic rolling that has happened.”
In any case, the MPC, beset by growing dissent and persistently above-target inflation, is due to make another interest rate decision later this Thursday.
Full L&G presentation in the usual place.
Related links:
The Bank of England’s big dilemma - FT Alphaville
Europe’s shocking short-termism – FT Alphaville
A 75bps rate rise could cost consumers £6.2bn, Deutsche says - FT Alphaville