Mortgage market equilibrium

Wednesday, October 17, 2007

The sub-prime sector is still seeing most of the action in the mortgage markets. The contrast between the rising rates and tightening lending criteria in the sub-prime market and the slowing down of the prime market through the stable base rate and falling swap rates.

The situation has brought the market into an unusual equilibrium whereby fixed and variable deals are priced similarly. With a year of base rate rises just behind us and the shock impact of the credit crisis, the mortgage market has fallen into a lull.

The volume of rate changes has fallen dramatically and very few providers are launching any products to differentiate themselves. The expected fall in interest rates has been reflected in the market and this should lead to an increase in demand and benefits from variable products.