Currently, $350 trillion worth of financial contracts reference the LIBOR rate worldwide. Banks and other financial institutions are now required to phase out any agreements that utilise LIBOR as a benchmark and transition to an alternative reference rate by the end of 2021. While this may seem like a long time from now, the process will likely be lengthy and complex. To ensure a smooth transition, banks and other impacted organizations will need to begin preparing well in advance. Right now, only 19% of firms say they’re ready. Neil Murphy, VP of global business development at ABBYY, discusses how these companies can best prepare for the changes to come.

The transition process will be no mean feat. It will involve creating task forces, sorting through immense volumes of documents, adopting new technologies, re-negotiating current agreements and developing entirely new financial products. Preparing early and thoroughly is critical for minimising risk from every angle – financial risk, legal and compliance exposure, and operational disruption. Planning ahead will also facilitate a smooth process for customers, helping maintain – or even increase – client satisfaction and retention.

While the transition may seem daunting for some organisations, it doesn’t have to be. To begin preparing, businesses need to understand what LIBOR is and how it will affect your business, including which products will be impacted, what the replacement options are, and what exactly the complex transition process will involve. Let’s start from the beginning.

What’s behind the transition?

According to the Consumer Financial Protection Bureau, the LIBOR rate is based on specific types of transactions between banks which now do not occur as frequently as they used to, making the rate less reliable. The governing bodies that oversee this index have stated that they cannot guarantee the rate will be available after 2021.

Certain private-sector banks which are currently required to submit information that is then utilised to set the LIBOR rate will stop being required to do so after next year, which means the rate will subsequently not be an accurate reflection of its underlying market. At this point, the quality of the rate will likely degrade to a degree at which it is no longer credible, which could cause LIBOR to stop publication immediately.

The end of LIBOR is imminent, which makes preparing for the transition and implementing alternative reference rates in advance an imperative for financial institutions. All types of banks and financial institutions will be impacted, from small regional banks serving local consumers to large global financial institutions providing commercial services to multinational enterprises. In addition, related industries, such as insurance, will also be impacted by the discontinuation of LIBOR. Even industries that are completely outside of the financial sector will feel a ripple effect.

The end of LIBOR is imminent, which makes preparing for the transition and implementing alternative reference rates in advance an imperative for financial institutions.

What’s the impact?

From 30-page mortgage agreements to 340-page commercial loan contracts, every type of financial product that utilises LIBOR will be impacted. First up is derivatives, including interest rate swaps, cross-currency swaps, commodity swaps, credit default swaps, interest rate futures, and interest rate options. Bonds will also be impacted, including corporates, floating rate notes, covered bonds, agency notes, leases, and trade finance. As for loans, the impact will be far reaching, from syndicated to securitised, business loans, real estate mortgages, private loans and even certain types of student loans. In short, any type of loan that utilises a variable interest rate based, in whole or in part, on LIBOR will be impacted.

There will also be an impact on short-term instruments such as repos, reverse repos, and commercial paper, and on securitised products like mortgage-backed securities (MBS), asset-backed securities (ABS), and commercial mortgage-backed securities (CMBS). Finally, in the retail sphere, it will affect loans, mortgages, pensions, credit cards, overdrafts and late payments.

To replace LIBOR, there will be various Alternative Reference Rates (ARRs), which will vary by geography.

How should we prepare?

Many companies have thousands, even hundreds of thousands, of LIBOR-based financial agreements circulating within their organisations. There are some global investment banks whose volume of related contracts reaches into the millions.

There will be many necessary steps in a successful transition. One of the most important is assessing where LIBOR is used across all business operations and identifying each individual contract, agreement and related document. Without a doubt, finding, collecting, and compiling every contract that utilises the LIBOR rate will be an extensive and complex process.

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Whether it’s a small- to mid-size bank or a large financial institution with hundreds of thousands of contracts, sifting through, reading, and pinpointing every document that references LIBOR will be cumbersome, costly and time-consuming if conducted entirely manually. The right technology, particularly those that are powered by AI and content intelligence technologies, could transform this process. They can sort through volumes of documents, accurately identifying relevant contracts thanks to advanced OCR and NLP technology, and automatically extracting relevant data. The right tools go a long way in simplifying the complex document-related processes involved in the LIBOR transition.

Identifying all related contracts is only the first step, however critical it is. After all relevant agreements have been compiled, the next step is to transition each individual contract to the new alternate reference rate. For many financial institutions, there will likely be a significant degree of re-negotiation involved in this process, particularly for contracts governing high-value financial products or agreements serving commercial clients.

The transition process is one that will likely involve many business units – from legal and compliance for managing risk, to product management for creating new offerings, to marketing and PR for developing effective communication strategies for customers, investors and stakeholders. Successfully navigating the transition will require a clearly defined roadmap, long-term vision, and the right technology. This combination will be crucial for firms to be prepared for the transition, and to ensure their business isn’t adversely affected by it.

While the deadline for transitioning from LIBOR may be over a year and a half away, time is still definitely of the essence. For businesses that want to minimise financial and legal risk, ensure a seamless transition, maintain their market share, and ensure customer loyalty, the time to begin preparing is now.

This was a welcome move to protect banks, markets and consumers from illegal behaviour. However, according to Aditya Oak, Principal Consultant at Brickendon, with greater protection comes considerable challenges and risks as financial institutions of all shapes and sizes need to manage what could possibly be one of the biggest banking changes in recent memory.

The transition may be described lightly as a repapering, but there should be no mistaking the fact that in reality, the bedrock on how markets operate is shifting and everyone should prepare for the cracks that may appear.

The long arm of LIBOR

Before dissecting LIBOR’s replacements, we need to appreciate the many levels on which it helps financial institutions with their daily business.

LIBOR is calculated across five major currencies and seven maturities and denotes the rate at which contributing banks believe they can borrow from each other on the London interbank market. It is also the reference point for setting interest rates on an extensive list of financial products. The changes are not restricted to LIBOR, with other jurisdictions such as Hong Kong and Australia considering following suit.

Most importantly, LIBOR helps set rates for hundreds of trillions of dollars’ worth of financial instruments, including swaps, annuities, credit cards and mortgages. It is the global benchmark rate at which banks lend to each other in the interbank market for short-term loans.

However, therein lies the problem. LIBOR has always been an approximate estimate and therefore open to potential manipulation – which became the very reason for its demise.

SOFR so good

This demise will make way for new and multiple counterparts in different parts of the world. SOFR, the Secured Overnight Financing Rate, will be LIBOR’s US dollar market replacement. As it is based on past transactions, it is therefore more accurate.

Daily SOFR volumes are usually between $700 to $800 billion, making it a transparent rate that is representative of the current market across a broad range of participants, including fund and asset managers, insurance companies, corporates, securities lenders and pension funds. It is therefore more protected from attempts at manipulation than LIBOR.

Meanwhile, Alternative Reference Rates (ARR), such as €STR (Euro short term rate replacing current EONIA in October 2019), reformed EURIBOR (Euro Interbank Offered Rate) and SONIA (Sterling Overnight Index Average – GBP), will be replacing LIBOR in their respective currencies.

However, this transition poses substantial challenges. Firstly, replacements like SOFR are based on historical rates, meaning fixings cannot happen until after the market has closed. This means lenders and borrowers will have less certainty about the actual rate at which transactions will be settled, thereby impacting their ability to hedge and then settle transactions.

Repercussions, ramifications and risk rates 

This repapering is bound to have a range of repercussions on banks. The International Swaps and Derivatives Association (ISDA) has suggested a fallback to all contracts which will have to be agreed by all market participants. As a result, while banks will stand to benefit from some transactions, they will lose from others.

Another key impact will be the additional workload. Increased regulatory scrutiny and the basic differences between LIBOR and the other ARRs will cause further challenges in transition. For one, while all ARRs are risk-free rates (RFR), LIBOR already includes the risk premium. Buy- and sell-side parties will also need to agree on how to incorporate risk premium into the pricing. Another challenge with this transition will be the calculation methodology for instruments with tenors longer than overnight, as the majority of the ARRs are only overnight rates (with the exception of reformed EURIBOR). LIBOR is quoted for a range of forward-looking tenors (including overnight).

Increased regulatory scrutiny and the basic differences between LIBOR and the other ARRs will cause further challenges in transition.

Even with its flaws, LIBOR worked well in the main, so any replacement with a less tried-and-tested benchmark is likely to have ramifications.

Maturities and managed moved

As with any change, there will be winners and losers. As billions of people, from financial institutions, insurers and banks through to pension holders, retail investors and mortgage holders will be impacted, the time to act is now.

Reports state that more than 80% of the LIBOR-linked financial instruments will mature by the end of 2021, but many will be renegotiated, and the rest will need to be converted. One of the key challenges will be pricing these new products and their associated risk modelling. In addition, the lack of a set deadline will make the changes more gradual and it is likely that each market will move as and when it is ready, ie. if the three-month SOFR rates are reliable, markets will stop using three-month USD LIBOR rates, prompting the partial demise way before the December 2021 deadline. Others that aren’t ready may take longer.

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Testing, technology and transition

As LIBOR makes way for the other rate setting systems, consumer loans are likely to pose problems. With more than 40% of outstanding LIBOR-based residential mortgage loans due to mature after 2021, if not handled correctly, the fallout could be huge.

This change will also impact technology, as the need for new systems and adjusted products arises.  Platforms, confirmation matching tools and market data providers will all have to be updated, along with valuation models, interest calculations and market feeds. In addition, there are a lot of dependencies with a range of counterparties, so maintaining good relationships with clients is going to be key to ensure transitions happen smoothly.

As with any change, the key, we believe, is to prepare. Ensure you know what exposure your business has to LIBOR and what your options are for the future. You need to manage the transition and stay ahead of the curve to switch with the market in order to be successful. As always, it is the ones who have prepared who are likely to come out on top.

At Brickendon we are working with a number of clients to ensure they are aware of the impacts the changes will have on their business. We have significant experience in regulatory change and our experts are well placed to help your business prepare to not only limit any impact the changes may have but also thrive from the change.

A low Annual percentage rates (APR) loan is almost always provided to people whose credit score is excellent. You can easily do a lot to improve your odds of getting a low interest rate by reversing your credit damage. Besides your credit rating, there is very little left to get any bank loan with a low-interest rate.

In the following paragraphs, we show you four tips for improving your credit history if it's not good.

1. First Things First

(Image source: a3papersize.org)

Boost your credit score. Low Annual percentage rates loans are usually provided to applicants with stellar or high credit ratings. To improve your credit rating, remove as much of your financial obligations as you possibly can and repay what you owe in a timely manner. Also, steer clear of making too many credit enquiries. Every time, you make your credit enquiry by applying for a credit card or loan, it ruins your credit track record.

2. Submit an Application for Loans Using Collaterals

Unsecured loans have high interests’ rates even if you have a good credit rating. Therefore, in order to get a low Annual percentage rates loan, consider getting a personal loan as an alternative. For instance, you can use the car title as collateral. Normally the value of the security must be comparable to the particular amount of loan you want to acquire. Secured loans generally come at lower interest rates than unsecured loans. If you are getting confused with the interest rates on personal loans, you better try www.Zmarta.fi to compare the options from more than 25 banks and lenders in your area.

3. Using A Co-Signer

The next tip of a low Annual percentage rates loan is to get a co-signer. This is actually known as co-debtor. You can ask your family member (spouse, parents or sibling) who have a good credit score to sign the loan with you. Once you have a co-signer, loan providers consider their credit history before deciding the interest rate at which they give you the loan.

The Annual Percentage Rate will be lower in case your co-signer has an excellent score. Make sure that you don't go delinquent on your loan because if you do, then your co-signer will be responsible for making payment on the rest of your loan and the interest. Besides, it'll adversely affect his / her credit score so be aware of this.

4. Essential Cost Comparisons

There are different loan companies with different interest rates. So, try to do some essential price comparisons using loan comparison sites. Once you have compared some loan providers, make contact with a couple of them and ask for an offer. They'd take the details you provide and determine the interest rate and monthly payment, and send you all you need to know on that loan. You better opt for the one with the lowest Annual percentage rates. Stick to the tips above, and within 6-12 months you will see your credit rating start to improve.

Last November, the Bank of England raised interest rates by 0.25% - the first increase for ten years. The Governor of the Bank of England, Mark Carney, warned that we could see two more increases over the next three years – but then in February of this year, the Bank’s policy committee warned that rates may actually need to rise “earlier” and by a “somewhat greater extent” than previously envisaged. Below Steve Noble, COO at Ultimate Finance, provides excellent insight into protecting against rate changes from hereon.

This will concern many SME owners. Research has shown that a quarter of SME entrepreneurs have funded the growth of their business through their own personal finances. The higher payments required when rates rise across mortgages, credit cards and other loans could put a squeeze on them at a time when conditions are already challenging. This is particularly true if high street banks tighten their lending to specific sectors, as happened during the last recession.

If this happens, good businesses could find themselves pressurised on both sides – putting jobs and entire organisations at risk.

My advice to small business owners and entrepreneurs worried about the prospect of almost certain rate rises is to assess the situation in a series of steps:

Work out what impact a rise of 0.25% or 0.5% would have on your repayment costs

Get your calculator out! Pool together all the finance products you have on variable rates and see how much a rate rise could add to your repayments. Many finance websites have handy calculators that will do this for you. The impact of a 0.25% increase may be small on one individual product, but if you have several it could add up.

Is this something that you can absorb, or will it put a strain on already stretched cash flow?

Think about what the likely increases mean for your business. If you are funding the company through your own finances, will rate rises create difficulties? If finances will be too tight following rate rises and banks reign in on lending, there’s no option but to look at the alternatives and rather than expecting the high street to come up with the answers.

Review your business costs and income

Are there are any unnecessary expenses you can cut out? Little business ‘luxuries’ you’ve been allowing that might need to go? On the income side, have you been undercharging for certain services or are you running ‘special offers’ that might need to end?

Fight back against late payments

Research by the FSB shows that late payment costs the UK economy £2.5bn every year and results in more than 50,000 business deaths. If rates rise as expected, black holes in your cash flow caused by late payments will have increasingly dire consequences. Have serious conversations with your partners and suppliers to lessen the problem, rather than accepting it as a usual part of running a business.

Explore the finance options

There are many forms of finance outside of traditional bank loans. For example, invoice finance that enables you to borrow funds against the value of invoices you have issued but not yet been paid for. Purchase finance that pays your suppliers for goods you buy from them. Asset finance for the purchase of business equipment. Or simply short-term loans to help you meet your needs.

Although banks will offer services of this type, the customer experience will be vastly different. Where high street banks will reject a business that doesn’t meet its pre-set criteria, other providers will offer a more flexible, tailored approach. A solution can be produced with payments terms that suit the business in question, rather than a set agreement which simply won’t work for many in need of financial support. As rate rises seem to be looming, now is the time to begin doing your homework.

SMEs are the growth engine of the UK economy and now more than ever its vital they are supported at every turn. Although rising interest rates will prove difficult for many, for those who plan for the future now, the road will become much less rocky.

Below Dan North, Chief Economist at Euler Hermes North America, lists several updates and thoughts on the latest matter surrounding the US federal reserve.

1. 1. A rate increase is a lock this week.
   2. We have been saying there will be 2-3 hikes in 2018, but now there seems to be pressure towards 3-4.
   3. We expect that the dreaded “dot-plot” the worst communications device ever, will also show a bit more of a lean to 4 hikes next year as recent economic data has been solid, and prospects for tax reform appear good (but we’re not there yet).
   4. The solid data will likely lead to a slight increase in the Fed’s GDP forecasts.
   5. Many wonder why the Fed is raising rates when we are still in relatively slow growth with no inflation. But it’s not about inflation today, it’s about inflation tomorrow since monetary policy acts with a lag of 3-5 quarters. And there is inflation – it’s just that it’s in assets like stocks, not consumer prices. Fed officials have expressed concerned about the risk of asset prices being overvalued.
   6. There is a problem though, Houston. The yield curve is flattening, and it may be because of the Fed. Clearly markets expect the Fed to keep driving the overnight rate up, and that could be pushing up the short end of the curve. And if you believe Fed actions will hold down inflation that could be pushing down the long end. That’s not a good sign for growth.
   7. Let’s not forget, when the Fed raises rates, it’s trying to slow the economy, and it works.
   8. Expectations are that there will be little change in posture next year under Powell’s command since he has never dissented as a Board member since 2012. He gave a relatively dovish testimony at his Senate hearing, suggesting he would basically be following in Yellen’s footsteps of raising rates gradually. But he also cautioned, as has Yellen, that hiking too slowly could cause inflation to overheat and force the Fed to hike rates faster.
   9. Interestingly Powell indicated that banking regulations implemented after the financial crisis were strong enough, but that it was also time to make the rules more efficient and less burdensome. “"We want regulations to be the most intense, the most stringent for the very largest, most complex institutions and want it to decrease in intensity and stringency as we move down through the regional banks and the community banks,"” Regional banks have been caught up in regulations designed for the larger banks, hampering loan growth. Relief for them could help the economy, and their stocks have rallied sharply since his testimony.
   10. Of course it’s Yellen’s last press conference. Will we hear a farewell, or some fond reminiscences?

Today, the 5^th July 2017, marks the ten year anniversary of the last time there was an interest rate rise in the UK.

On this date in 2007, the Monetary Policy Committee voted to increase rates to 5.75%, just as the wheels were about to come off the global economy. A decade on from the last interest rise, the Bank of England is once again mulling a rate hike, though the current level of consumer debt leaves the central bank facing a tightrope walk on interest rate policy.

• 8 million Britons haven’t seen an interest rate rise in their adult life
• £1,000 cash in the bank is now worth £878 after accounting for inflation
• This compares to £1,323 from £1,000 invested in the stock market
• Money in non-interest bearing accounts has risen almost eightfold to £179 billion
• UK consumer borrowing is higher than on the eve of the financial crisis… and rising
• The Bank of England bind
• Charts and tables

Laith Khalaf, Senior Analyst, Hargreaves Lansdown: “It’s been a decade since the last interest rate rise, so it’s little wonder that borrowers have got used to the idea of cheap money. Indeed around 8 million Britons haven’t witnessed an interest rate rise from the Bank of England in their adult lives.

Low interest rates undoubtedly helped to prop up the economy in the wake of the financial crisis, by lowering the cost of debt for UK consumers and companies. However the burden of loose monetary policy has very much fallen on those with cash in the bank, who have seen the interest they receive wither away to virtually nothing.

Meanwhile the UK consumer has even more borrowing now than ten years ago, thanks to weak wage growth and the addictive nature of low interest rates. Rising house prices and the increased cost of a university education mean that the current generation of young adults are particularly accustomed to eye-watering amounts of debt.

There has been a sharp rise in consumer borrowing over the last year, and current conditions of weak wage growth coupled with rising inflation are likely to exacerbate the use of credit to fund living expenses. Indeed the savings ratio has now fallen to a record low, highlighting the squeeze currently facing UK consumers.

The fragile debt dynamics of the UK economy put the Bank of England in a bind, because while a rate hike would help to curb consumer borrowing, it will also make the existing debt mountain less affordable. The central bank therefore faces a tightrope walk between keeping borrowing levels in check, without putting too big a dent in consumer activity, which would have a damaging effect on the UK economy.

The Monetary Policy Committee has turned more hawkish recently, and expectations of a rate rise have built up considerably in recent weeks. However the large amount of consumer debt means that even when the Bank of England does finally decide to wean the UK off low interest rates, it will be a very slow and steady process.”

The cost for cash savers

Those with cash in the bank have now seen a decade of falling returns. £1,000 stashed in a typical instant access account in July 2007 would now be worth £1,107. However after factoring in inflation, which has risen 26% over the period, the real value would today be £878. By comparison the same £1,000 investment in the UK stock market in July 2007 would now be worth £1,666, or £1,323 after adjusting for inflation. (Returns calculated with interest and dividends re-invested).

This is a pretty astonishing result, seeing as this investment would have been made just as the UK stock market was about to fall by almost 50% as a result of the financial crisis. These figures highlight the healing power of time on stock market returns, even if you happen to be unlucky enough to invest just as conditions take a turn for the worse. The figures also demonstrate the toll taken on cash in the bank by such an extended period of low interest rates.

Indeed, over the last ten years the amount of money held in non-interest bearing accounts has risen almost eightfold, from £23 billion in 2007 to £179 billion today. At the same time the average rate on the typical instant access account has fallen from 3.3% to 0.4%, and the average rate on non-instant access accounts (including cash ISAs) has fallen from 5% to 0.9%.

(Sources: Bank of England, Thomson Reuters Lipper, Moneyfacts)

The benefit for borrowers

While cash savers have undoubtedly felt the pinch from lower interest rates, there have been benefits for borrowers which have helped support the economy. The typical mortgage rate has fallen from 5.8% in July 2007 to 2.6% today, helping to support household incomes and the housing market in the wake of the financial crisis. Unsecured consumer borrowing rates have fallen too. The result is much lower levels of consumer loan defaults. UK lenders have written off £2.5 billion of bad consumer loans over the last year, this compares to £6.8 billion in 2007.

Borrowing costs have also fallen for UK companies. The typical borrowing cost for a large company with a good credit rating has fallen from 6.4% in July 2007 to 2.8% now. This has allowed companies to gain access to funds cheaply, thereby supporting them in making investments and profits, and providing employment.

Low interest rates have therefore helped the economy by reducing the burden on UK consumers and companies. However it seems consumers are now increasingly taking advantage of low interest rates to load up on debt, which is causing concern at the Bank of England. Only last week the ONS published data which showed that the UK savings ratio has fallen to a record level of 1.7%, which suggests the consumer squeeze is beginning to hit home.

(Sources: Bank of England, Markit iBoxx)

Consumer credit warning signs

The Bank of England recently warned that consumer credit and mortgage lending were a key risk to financial stability in the UK. This is because there has been a rapid increase in consumer credit of late, which rose 10% over the last year. As a result the central bank is bringing forward an assessment of the banking sector’s exposure to potential losses stemming from stressed conditions in the consumer credit market.

In absolute terms, levels of UK consumer debt are actually higher now than they were on the eve of the financial crisis, a point in history when it is widely recognised that the UK was living beyond its means. Consumer borrowing (including credit cards, overdrafts and loans) now stands at £199 billion, compared with £191 billion in July 2007, and a highest ever level of £209 billion recorded in September 2008. Mortgage borrowing now stands at £1.3 trillion, up from £1.1 trillion in July 2007.

The good news is household income has also risen over this period, which along with low interest rates make this debt more affordable. In 2007, the household debt to disposable income ratio peaked at 159.7%. This fell back in the years following the financial crisis as consumers tightened their belts and banks became more reluctant to lend. However it has recently started to head in the wrong direction again, rising from 139.9% in 2015 to 142.6% in 2016.

The Brexit-induced currency crunch facing consumers at the moment can be expected to put further upward pressure on this ratio. With wage growth weak and inflation rising, consumers are more likely to rely on debt, while their disposable household income is likely to come under pressure. Indeed in its latest forecasts the Office for Budget Responsibility predicts this ratio will hit 153% in 2022.

(Sources: Bank of England, ONS, Office for Budget Responsibility)

The Bank of England bind

This all underlines the very difficult situation the Bank of England finds itself in. Raising rates will help to wean investors off borrowing, however it will also make the large existing stock of debt more expensive, which will eat into monthly budgets, putting downward pressure on spending and weighing on economic growth.

This is perhaps why the bank has so far chosen to use more specialised tools to deal with the sharp rise in consumer credit, such as tightening up mortgage lending rules and increasing bank capital requirements to deal with any downturn in credit conditions, rather than wielding the sledgehammer of an interest rate rise.

However, more members of the monetary policy committee appear to be in favour of a rate rise, which may mean we could soon be in for the first hike since 2007.  Markets are now pricing in a 55% chance of a rate rise by the end of the year. However the fragile debt dynamics of the UK economy mean that even when the Bank does decide to raise rates, it’s going to tread very carefully indeed.

It’s also worth pointing out that this wouldn’t be the first time that expectations of a rate hike have risen only to be subsequently quashed. At the beginning of 2011, two years after rates had been cut to the emergency level of 0.5%, the market was expecting interest rates to be at 3% by 2014.

Charts and tables

The data behind these charts is available on request.

Here’s a summary of interest rate data:

The stock market fell sharply in 2007 and 2008, but has since staged a significant recovery, while cash has been left in the doldrums:

Consumer credit fell in the wake of the financial crisis, but has started to pick up again and is approaching a record level; weak wage growth and rising inflation are likely to stoke the borrowing binge further:

Low interest rates have helpd the economy in a number of ways, not least by making mortgage payments more affordable, which has helped to underpin the housing market:

Sources: Bank of England, Thomson Reuters Lipper, Nationwide, ONS

(Source: Hargreaves Lansdown)

Mortgage rates in the US fell for the third week in a row, with the benchmark 30-year fixed mortgage rate falling to the lowest level in more than six months, according to Bankrate.com's weekly national survey. The average 30-year fixed mortgage has a rate of 4.09%, the lowest since November 16th 2016, and an average of 0.25 discount and origination points.

The larger jumbo 30-year fixed slid to 4.02%, and the average 15-year fixed mortgage rate dropped to 3.31%, also the lowest since mid-November. Adjustable mortgage rates were mixed, with the 5-year ARM inching down to 3.41% while the 7-year ARM nosed higher to 3.60%.

Between inflation rates stalling out, consumer spending softening and ongoing questions about a White House scandal and its implications for policy initiatives, there is just enough uncertainty to keep bond yields and mortgage rates on a downward trajectory. Mortgage rates are closely related to yields on long-term government bonds, which appeal to investors any time uncertainty, or low inflation, is in the air. With a looming employment report for the month of May, investors will be looking for some confirmation of more robust economic activity in the current quarter than the anemic 1.2% annualized pace of growth in the first three months of the year.

At the current average 30-year fixed mortgage rate of 4.09%, the monthly payment for a $200,000 loan is $965.24.
30-year fixed: 4.09% -- down from 4.13% last week (avg. points: 0.23)
15-year fixed: 3.31% -- down from 3.32% last week (avg. points: 0.22)
5/1 ARM: 3.41% -- down from 3.42% last week (avg. points: 0.30)

(Source: Bankrate)

With a flurry of news breaking in Washington, US mortgage rates moved to the downside with the benchmark 30-year fixed mortgage rate falling to a five-month low of 4.15%, according to Bankrate.com's weekly national survey. The 30-year fixed mortgage has an average of 0.25 discount and origination points.

The larger jumbo 30-year fixed slid to 4.08%, and the average 15-year fixed mortgage rate dropped to 3.35%. Adjustable mortgage rates were on the decline as well, with the 5-year ARM sinking to 3.42% and the 7-year ARM reverting to where it had been two weeks ago at 3.62%.

There's nothing like a good old fashioned political crisis to make investors nervous and bring mortgage rates lower. Mortgage rates are closely related to yields on long-term government bonds, which have been in high demand amid the turmoil in Washington. While the White House scandal was the catalyst for a measurable drop in the past couple days, mortgage rates had already moved a bit lower thanks to a slower than expected rise in consumer prices. Another factor helping keep long-term yields, and mortgage rates by extension, in check is that the Federal Reserve seems poised to raise short-term interest rates as soon as June. An increase in short-term rates can be seen as good news by long-term bond investors as it keeps the inflation genie in the bottle.

At the current average 30-year fixed mortgage rate of 4.15%, the monthly payment for a $200,000 loan is $972.21.

SURVEY RESULTS

30-year fixed: 4.15% -- down from 4.22% last week (avg. points: 0.25)
15-year fixed: 3.35% -- down from 3.44% last week (avg. points: 0.21)
5/1 ARM: 3.42% -- down from 3.48% last week (avg. points: 0.30)

(Source: Bankrate.com)

Mortgage rates were little changed leading up to Wednesday's Federal Reserve announcement, with the benchmark 30-year fixed mortgage rate inching lower to 4.18%, according to Bankrate.com's weekly national survey. The 30-year fixed mortgage has an average of 0.22 discount and origination points.

The larger jumbo 30-year fixed was unchanged at 4.14% and the average 15-year fixed mortgage rate slipped to 3.39%. Adjustable mortgage rates were slightly lower, with the 5-year ARM dipping to 3.46% and the 7-year ARM retreating to 3.62%.

While mortgage rates were little changed in the days leading up to the Fed meeting, they are actually one quarter%age point lower now than when the Fed hiked interest rates at their last meeting in March. Weakness in first quarter economic growth and geopolitical concerns surrounding North Korea, Syria, and an election in France all contributed to bringing mortgage rates lower. But with the Fed's glass-half-full economic outlook, dismissing the economic sluggishness at the beginning of the year as temporary, it is evident that the Fed remains inclined to continue raising interest rates. Mortgage rates are likely to trend higher through the balance of 2017 as interest rates rise, but as we've seen recently, there are likely to be plenty of ups and downs as economic sentiment swings back and forth.

At the current average 30-year fixed mortgage rate of 4.18%, the monthly payment for a $200,000 loan is $975.70.

Survey results

30-year fixed: 4.18% -- down from 4.19% last week (avg. points: 0.22)

15-year fixed: 3.39% -- down from 3.43% last week (avg. points: 0.21)

5/1 ARM: 3.46% -- down from 3.48% last week (avg. points: 0.28)

(Source: Bankrate.com)

With the UK economy having held up well and inflation now back above the 2% target, there is growing disquiet about whether the Bank of England should be keeping interest rates this low. Adam Chester, Head of Economics at Lloyds Bank Commercial Banking here provides Finance Monthly with expert analysis on the matter.

We know that one member of the rate-setting Monetary Policy Committee broke ranks and voted for an immediate quarter point rise of the UK Bank Rate at its March meeting, and the minutes showed it would not take much further ‘upside news’ for others to follow suit.

But latterly, fresh economic indicators have painted a softer picture, and market sentiment has blown hot and cold in response.

Industrial and construction output for February came in weaker than expected, dropping on the month by 0.7 per cent and 1.7 per cent, respectively.

The softening in the latest Purchasing Managers’ Indices for both these sectors points to little improvement in March, though the more important services PMI survey remained upbeat.

Meanwhile, recent reports have pointed to a slowing in consumer spending, although the March figures may have been affected by the later timing of Easter this year.

Overall, it seems that the economy has lost some momentum in the first quarter.  But after the strong fourth quarter, this is perhaps not particularly surprising.

So how likely is it that the Bank of England will raise interest rates before the end of the year?

Mixed messages

The case for doing so rests mainly on two arguments: the rise in inflation and the strength of the labour market.

At 2.3 per cent, inflation is now above the government’s two per cent target (and likely to remain so for some time). Meanwhile, the labour market is approaching full employment. At 4.7 per cent the unemployment rate is at its lowest for twelve years.

The international backdrop may also support the case for a modest rise in UK rates.

Global equity prices are close to all-time highs, the recovery in the euro area is picking up steam and the US has already started to raise interest rates – and where the US leads, the UK tends to follow.

That said, there are good reasons to believe the economy’s resilience could be sorely tested over the coming months. The negotiations for the UK to leave the EU risk sparking a renewed period of uncertainty, while the full effect of the drop in the pound has not yet fed through.

And while rising inflation and a strong labour market may prompt calls for higher wages, there is little sign of that at the moment. Instead, with the fall in the pound expected to drive inflation above three per cent by the end of the year, households are likely to increasingly feel the squeeze.

Key signals

So, the Bank is facing mixed messages. Ultimately, how this all breaks will depend on three key signals:

• What happens to inflation expectations – the Bank of England is less concerned about the current pace of inflation than it is about inflation expectations, as it is these that could derail the Bank’s ability to meet its inflation target over the medium term. Inflation expectations are currently stable, but policymakers will be monitoring for any second-round effects from the recent rise in inflation.
• Whether the recent slowdown in consumer spending proves no more than a blip and the economy resumes momentum – although it has slowed recently, consumer spending drove the economy in the second half of last year in the wake of the EU vote. If growth turns up again, it would put added pressure on resources and a rate hike would be more likely.
• The evolution of wages – the combination of low unemployment and rising inflation means there is a risk that wages start to rise more sharply. This would risk leading to a potential wage-price spiral and prompt the Bank of England to raise interest rates to slow labour demand. If the economy slows, however, wage growth is likely to remain subdued as employment conditions would soften.

If all three of these signals begin to flash red, then we could be looking at an interest rate rise before the end of the year.

But if they all soften, it will only serve to confirm what the markets are expecting and provide further comfort to the doves on the Monetary Policy Committee, pushing the likelihood of a rate rise well into 2018, or even later.