April 11, 2017

Interesting story about the effects of mortgage rule changes in the UK – there are some who have borrowed on a floating rate mortgage. This carries a higher rate than a two-year mortgage – for reasons which I do not understand, since the Gilt curve is normal – and they want to switch, but are not allowed to do so because they no longer qualify for a fixed rate mortgage. They’re called mortgage prisoners:

The customer, who asked not to be named, had been stranded on Bank of Scotland’s standard variable rate (SVR) for over four years. He paid thousands of pounds a year in extra payments because the bank refused his requests to move to a cheaper, fixed-rate deal, and fell into arrears at some points.

While fixed mortgage rates have fallen in line with the Bank of England base rate, lenders’ SVRs have remained flat or increased (see chart, below).

Thousands of people who took out mortgages before the financial crisis found they were barred from switching to new fixed-rate mortgages when existing deals ended.

Lenders said rules introduced following the crisis, known as the Mortgage Market Review, meant existing customers now failed stricter “affordability” tests. This led to the bizarre situation where customers, known as mortgage prisoners, were told they couldn’t afford to switch to cheaper rates.

ukmortgagerates_170411
Click for Big

I don’t understand why the inversion exists, given the current gilt curve:

giltcurve_170411
Click for Big

But I have to say one thing … only an unholy alliance of bankers and regulators can produce the phrase ‘you can’t afford to halve your mortgage payments!’

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.4636 % 2,180.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.4636 % 4,001.3
Floater 3.49 % 3.58 % 40,754 18.36 4 0.4636 % 2,306.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.0196 % 3,028.4
SplitShare 4.93 % 4.21 % 59,998 0.65 6 0.0196 % 3,616.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0196 % 2,821.8
Perpetual-Premium 5.27 % -9.52 % 72,786 0.09 23 0.0034 % 2,793.0
Perpetual-Discount 5.06 % 5.03 % 115,688 15.36 13 -0.1480 % 3,009.0
FixedReset 4.33 % 3.94 % 242,964 6.66 94 -0.0512 % 2,386.9
Deemed-Retractible 4.97 % 3.92 % 143,887 0.12 31 -0.1612 % 2,900.8
FloatingReset 2.52 % 3.10 % 54,299 4.54 9 0.2562 % 2,544.8
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset -1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.67
Bid-YTW : 9.15 %
MFC.PR.H FixedReset -1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 4.47 %
BIP.PR.A FixedReset 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-04-11
Maturity Price : 23.10
Evaluated at bid price : 24.35
Bid-YTW : 4.71 %
SLF.PR.J FloatingReset 1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.93
Bid-YTW : 8.42 %
BAM.PR.B Floater 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-04-11
Maturity Price : 13.27
Evaluated at bid price : 13.27
Bid-YTW : 3.58 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PR.X FixedReset 143,727 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-04-11
Maturity Price : 17.44
Evaluated at bid price : 17.44
Bid-YTW : 4.19 %
SLF.PR.I FixedReset 122,659 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.57
Bid-YTW : 4.74 %
RY.PR.Z FixedReset 117,866 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-04-11
Maturity Price : 22.31
Evaluated at bid price : 22.60
Bid-YTW : 3.77 %
BNS.PR.B FloatingReset 106,500 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.16
Bid-YTW : 3.00 %
RY.PR.Q FixedReset 64,301 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 27.39
Bid-YTW : 3.21 %
TD.PF.H FixedReset 61,993 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 3.38 %
There were 30 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.T FixedReset Quote: 23.10 – 23.44
Spot Rate : 0.3400
Average : 0.2477

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-04-11
Maturity Price : 22.74
Evaluated at bid price : 23.10
Bid-YTW : 3.81 %

PWF.PR.A Floater Quote: 14.62 – 14.90
Spot Rate : 0.2800
Average : 0.1999

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-04-11
Maturity Price : 14.62
Evaluated at bid price : 14.62
Bid-YTW : 3.26 %

BNS.PR.H FixedReset Quote: 26.45 – 26.66
Spot Rate : 0.2100
Average : 0.1306

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 26.45
Bid-YTW : 3.50 %

MFC.PR.H FixedReset Quote: 24.71 – 24.92
Spot Rate : 0.2100
Average : 0.1318

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 4.47 %

IFC.PR.A FixedReset Quote: 18.98 – 19.24
Spot Rate : 0.2600
Average : 0.1830

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.98
Bid-YTW : 7.04 %

MFC.PR.F FixedReset Quote: 15.67 – 15.88
Spot Rate : 0.2100
Average : 0.1459

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.67
Bid-YTW : 9.15 %

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