Mortgage rate rises – a familiar tale

As speculation around mortgage interest rate rises continues, our Chief Executive, Paul Ellis, gives his perspective:

Back in early 2011, the markets were awash with speculation about a rise in bank base rates. This was picked up by BBC News and mortgage brokers the length and breadth of the land excitedly advised everybody to seek a new fixed rate deal to protect themselves from rising mortgage rates.

Only one problem: it never happened. Base rate remains rooted at 0.5% and economists now vie to come up with the longest dated prediction of when base rates might see some movement – 2015 is trending at present.

So here we are in early 2012. Many lenders, unable to raise sufficient funding from retail sources, are finding their cost of funding from the wholesale money markets edging up, with knock-on effects for their mortgage pricing. A different reason, but the same story: mortgage brokers urging everybody to seek a new fixed rate deal to protect themselves…

The rates at which wholesale money can be obtained may or may not remain elevated, but they are as likely to fall. What is more certain is that with each round of such speculation, there are fees to be earned. Those lenders that offered uneconomic mortgage pricing during 2011 – itself one of the behaviours that led to the crisis of 2007 – also now need to correct their pricing in order to boost their capital levels in advance of new international rules on minimum capital. 

What does this mean for Ecology, which offers a straightforward Standard Variable Rate (SVR) mortgage? All of our lending is funded 100% by the deposits made by our members, who buy into our environment-conscious lending policy. So our SVR is not under any pressure from rising wholesale money market rates. This isn’t just responsible business practice – it’s part of our commitment to mutuality in running our affairs.

Our deliberately simple funding model means we can give Ecology’s members a level of transparency that mainstream institutions simply can’t. We’re open about how we set our interest rates, and we’re open about how we use our savers’ money. Isn’t it time our big banks followed suit?


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