U.K. LENDERS OFFER MORE FIXED RATE MORTGAGES
  More U.K. Lenders are offering homebuyers
  fixed interest rate mortgages under which the borrower makes
  the same monthly payment no matter what happens to other
  interest rates.
      And with mortgage rates now at their lowest levels in
  years, the loans have been snapped up by eager home buyers
  trying to lock into cheap money.
      The decision to offer fixed rate loans, industry officials
  said, reflects the increasingly competitive nature of the home
  mortgage business.
      While fixed rate mortgages are uncommon in the U.K., They
  were the mainstay of the business in the U.S. Up until only a
  few years ago.
      But in the early 1980s interest rates soared. U.S. Lenders,
  mostly savings and loan associations, were earning rates as low
  as three pct on 30 year fixed rate mortgages they held in their
  portfolios but had to pay depositors rates as high as 15 pct to
  induce them to retain their accounts.
      As a result hundreds of institutions collapsed or were
  forced to merge. The survivors decided to offer mortgages whose
  rates would move in line with the cost of funds.
      "We very much have the example of the U.S. Thrifts in mind,"
  said a spokesman for Abbey National Building Society,
  explaining why his institution, for the time being, is only
  offering variable rate mortgages.
      The rash of advertising to solicit new business has helped
  homebuyers to become even choosier about loans and lenders
  concede they are being forced to undercut each other still
  more.
      Sharp cuts on variable rate mortgages announced earlier
  this week by the nation's two largest building societies and by
  National Westminster Bank Plc reflect growing competition for
  new business, officials at all three institutions said.
      The fixed rate mortgages on offer carry interest rates even
  below those on the variable rate loans.
      "Of course they are less profitable than other (variable
  rate) mortgages," said a spokesman for Midland Bank Plc, which
  earlier this year said it earmarked 500 mln dlrs for fixed rate
  new mortgage loans.
      But he said the bank is willing to offer less profitable
  loans because, "It was just another way to attract people to our
  mortgage product."
      Trustee Savings Bank Plc (TSB) was offering five year fixed
  rate mortgages at 9.9 pct earlier this year.
      The 100 mln stg that TSB set aside for the loans was
  exhausted within just a few days, according to a spokeswoman.
      "Everybody loves an under 10 pct mortgage," she said, noting
  that within five days the bank loaned the equivalent of 25 pct
  of its 1986 volume.
      In short, the appeal of fixed rate mortgages is that they
  offer an opportunity to gamble on the direction of interest
  rates. If interest rates fall after the mortgage is made the
  lender is earning an above average return on assets.
      But if interest rates rise it is the homebuyer who has won
  the benefit of cheap money.
      Household Mortgage Co had planned to offer a 25 year fixed
  rate mortgage after the June 11 elections on the assumption
  that a Conservative Party victory would help money market rates
  fall further, according to Duncan Young, managing director.
      Young explained that the company had planned to protect
  itself against the chance of rising interest rates by buying a
  complicated hedging instrument.
      But money market rates have risen contrary to expectations
  and the company has shelved its plans for the time being. He
  said money market rates were too high to arrange both the
  mortgages and hedge profitably.
      However, he said that when the Household Mortgage Co does
  make fixed rate mortgages it is likely to securitise them. This
  means bundling different mortgages together to resemble a bond
  and selling them to an investor.
      For technical reasons securitisation is simpler and more
  efficient with fixed rate rather than with floating rate
  mortgages. In the U.S., Where fixed rate mortgages are popular
  again, securitisation has provided the bulk of mortgage money
  over the past few years.
  

