Meltdown and Interest rates

Bitstring , from the wonderful person Arthur2 said

Well, central banks cut the official rates to keep things moving along (the Fed already did), whereas the banks & B/Socs start hiking their rates up because they really don't want to lend it out (or they maybe even need it deposited) - that's happening too. Which one wins out depends on where you sit.

Interest rates at which borrowing is available to retail customers will likely rise in comparison with base rates (i.e. spreads will rise) as Banks move to protect their profits.

If the "world economy is on its way to the junk yard" this is also likely to cause long rates (borrowing over periods of 10+ years and the like) to rise as there will be less incentive for foreign governments to invest in the long-dated bonds of western governments. This will cause a rise in the cost of borrowing over longer periods and therefore mortgages will become more expensive.

In message , Tom Robinson writes

Why?

The cost of fixed rate mortgages is determined by swap rates which are in turn influenced by benchmark rates for long term borrowing (2, 3, 5 and even 10 years).

In message , Tom Robinson writes

But most mortgages are on variable rates and

Most new mortgages are fixed rate these days. Those on variable rate usually have so little borrowing that it's not worth their while to switch to a fixed rate. 5 years is a long term rate compared to the overnight rate (which is all the BoE can control).