Despite an historic low Bank of England base rate, the spread between the standard variable rate (SVR) for mortgages in the UK and the base rate widened significantly in the aftermath of the financial crisis, and has continued to trend higher. Fixed rate deals in the UK tend to be much shorter than in the US (2 and 3 year deals are very common; finding non-punitive deals longer than 5 years is very difficult). As many of these expire, lenders automatically move on to the SVR. In the past mortgage holders tended to remortgage, but as banks continue to take less risk, and tighten their credit conditions, it is becoming harder to do this. Anecdotally, we have heard of several instances that support this.

Indeed, the data corroborates this also. From more than 50% of outstanding mortgage balances in the UK being on a fixed rate in early 2008, the figure is now less than 30%. The BoE, knowing the prevalence of variable rates and tracker mortgages, divined the fastest way to relieve pressure on consumers in the wake of the financial crisis was to slash rates. Now, the problem has come home to roost. Most borrowers are on variable rates and the base rate remains floored. Fixed rates and SVRs looked to have bottomed. The potential harmful effects of a base rate rise (affecting, of course, tracker rates too), or a SVR rise on the UK economy are intensifying.