Mortgage Contract Design David Miles Monetary Policy Committee - - PowerPoint PPT Presentation

Mortgage Contract Design

David Miles Monetary Policy Committee Bank of England Federal Reserve Bank of New York May 2015

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Percentage of UK mortgages that are fixed rate

0% 10% 20% 30% 40% 50% 60% 70% 80% Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014

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Proportions of new fixed rate loans - by length of fix

Caveat: Only 41% of the fixed rate loans in the database provided information on the length of the fix. Conclusions drawn from the chart above therefore assumes that the propensity to report the length of the fix is uncorrelated with the length of the fix.

0% 10% 20% 30% 40% 50% 60% 70% 80% 2005.2 2005.4 2006.2 2006.4 2007.2 2007.4 2008.2 2008.4 2009.2 2009.4 2010.2 2010.4 2011.2 2011.4 2012.2 2012.4 2013.2 2013.4 2014.2 2014.4 Percentage of new Fixed Rate Loans Less or equal to 2 yrs 3 yrs 4 to 5 yrs Greater than 5 yrs

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Effective interest rates on the stock of mortgages

0% 1% 2% 3% 4% 5% 6% 7% Jan-04 Aug-04 Mar-05 Oct-05 May-06 Dec-06 Jul-07 Feb-08 Sep-08 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Effective rate

• n all

mortgages Effective rate

• n variable

rate mortgages Effective rate

• n fixed rate

mortgages Bank Rate

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Mortgages arrears (stock) and possessions (flow)

0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 95 97 99 01 03 05 07 09 11 13 More than 3 months (right-hand scale) More than 6 months (right-hand scale) Quarterly possessions rate (left-hand scale) Percent of mortgages Per cent of mortgages

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UK House Prices

• 20
• 15
• 10
• 5

5 10 15 20 25 30 2000 2003 2006 2009 2012 2015 Halifax (advanced 2 months) Nationwide (advanced 2 months) ONS (advanced 1 month) Land Registry Percentage change on a year earlier

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Help to Buy: Equity Loans

Format and Eligibility

• New-build homes in England with a maximum purchase price of £600,000

(c.$900,000).

• Minimum 5% deposit; maximum 20% government equity loan; remainder (up to

75%) from conventional mortgage.

• Must be the only property of the buyer.

Fees and Repaying the Loan

• No fees for first 5 years; thereafter 1.75% p.a.
• Cost of loan repayment depend on the market value of the property at the time of

repayment (or sale of property).