Jury still out on impact of higher mortgage costs to homebuyers

THE DAYS OF deep discount mortgage rates are coming to an end, but not so quickly yet as to deliver a truly hard jolt to the property market.

It may seem like a jolt when you look at the red line in the first chart, however. Only four months ago, 93.7 per cent of all new mortgages were being granted at interest rates more than 250 basis points below HSBC's best lending rate (BLR).

By the end of June, that figure had dropped to 40.4 per cent and the figures for July, when they come out, will almost certainly see that trend continuing steeply down.

But those figures may be a little deceptive. It is only the very deep discount mortgages that the banks are now avoiding. As the blue line on the chart shows, the proportion of new mortgages carrying interest rates of more than 150 basis points below the BLR was still 96.2 per cent in June and this is only a smidgen off the record figure.

This suggests that, although most new homebuyers are getting less advantageous terms than they did earlier this year, they are still doing very well on the whole.

The real question here, however, is just how much more interest they are paying on their mortgages now that public commentary almost every day features dire warnings that the property market is in trouble because of generally rising interest rates.

The second chart puts this in perspective. The red line here represents HSBC's BLR and the blue line represents my calculation of the average new mortgage rate since 1998. I shall concede that my figures are subject to a range of error as I have had to calculate them from other data series, but the error is unlikely to be large.