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ANDREW MACDONALD General Manager – Treasury & Capital Markets

ANDREW MACDONALD General Manager – Treasury & Capital Markets. Chairman – Amber Homeloans Membership SBS Operational Board Asset & Liability Committee Product Approvals Group Group Credit & Lending. NON-ADMINISTERED MORTGAGES. Capped Rate Mortgages Collared Mortgages

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ANDREW MACDONALD General Manager – Treasury & Capital Markets

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  1. ANDREW MACDONALDGeneral Manager – Treasury & Capital Markets Chairman – Amber Homeloans Membership SBS Operational Board Asset & Liability Committee Product Approvals Group Group Credit & Lending

  2. NON-ADMINISTERED MORTGAGES • Capped Rate Mortgages • Collared Mortgages • Base Rate Tracker Mortgages • Manhattan Mortgage • Stateside Mortgage • Fixed Rate Mortgages

  3. WHY ARE YIELD CURVES IMPORTANT? • If a lender wants to issue a Fixed Rate Mortgage (FRM) it has 3 choices • Hedge with a fixed rate deposit • Run unhedged and risk interest rates rising and impacting profitability • Hedge the fixed rate exposure by entering into a swap with a bank The majority of Fixed Rate Capped/Collared Mortgages in excess of 2 years are swapped and hence any movement in the yield curve will be reflected by a change in pricing of the FRMs

  4. JUNE 2001 – SEPT 2001

  5. JUNE 2002 – SEPT 2002

  6. JUNE 2003 – SEPT 2003

  7. JUNE 2004 – SEPT 2004

  8. EARNINGS TO HPI RATIO

  9. BANK BASE RATE

  10. MPC MINUTES • Surprising slowdown in both residential real estate & household consumption • Surprising weakness in the labour market • Pay pressure subdued • Worry about sterling depreciation • Weaker outlook for US economy • Will be watching the mortgage market closely to see how lower FRM’s affect the housing market Available on www.bankofengland.co.uk/mpc

  11. TODAY’S YIELD CURVE

  12. Interest rate yield curves are the point where the BULLS meet the BEARS • They are NOT a prediction of where interest rates will be at a future point in time

  13. Statistically, the MPC move rates more often in the months where there is an inflation report ie February, May, August and November

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