Why lower house prices could lead to higher mortgage rates

Fergus Cumming and Danny Walker

Bank Rate has risen by more than 5 percentage points in the UK over the past couple of years. This has led to much higher mortgage rates for many people. In this post we analyse another potential source of pressure on mortgagors: the potential for falls in house prices to push borrowers into higher – and therefore more expensive – loan to value (LTV) bands. In a scenario where house prices fall by 10% and high LTV spreads rise by 100 basis points, we estimate that an additional 350,000 mortgagors could be pushed above an LTV of 75%, which could increase their annual repayments by an extra £2,000 on average. This could have a material impact on the economy.

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Bitesize: How much did PPI subsidise personal loan rates pre-crisis?

David Seaward

The Payment Protection Insurance (PPI) mis-selling scandal has rumbled on for years. But how did PPI impact loan margins pre-crisis?

This post argues that income from cross-selling PPI substantially offset lenders’ margins on personal loans between 2004 and 2009, and compares the pre-crisis PPI-adjusted margin to loan spreads today.

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