ANDREW MACDONALD General Manager – Treasury & Capital Markets Chairman – Amber Homeloans Membership SBS Operational Board Asset & Liability Committee Product Approvals Group Group Credit & Lending

NON-ADMINISTERED MORTGAGES Capped Rate Mortgages Collared Mortgages Base Rate Tracker Mortgages Manhattan Mortgage Stateside Mortgage Fixed Rate Mortgages

WHY ARE YIELD CURVES IMPORTANT? If a lender wants to issue a Fixed Rate Mortgage (FRM) it has 3 choices Hedge with a fixed rate deposit Run unhedged and risk interest rates rising and impacting profitability Hedge the fixed rate exposure by entering into a swap with a bank The majority of Fixed Rate Capped/Collared Mortgages in excess of 2 years are swapped and hence any movement in the yield curve will be reflected by a change in pricing of the FRMs

JUNE 2001 – SEPT 2001

JUNE 2002 – SEPT 2002

JUNE 2003 – SEPT 2003

JUNE 2004 – SEPT 2004

EARNINGS TO HPI RATIO

BANK BASE RATE

MPC MINUTES Surprising slowdown in both residential real estate & household consumption Surprising weakness in the labour market Pay pressure subdued Worry about sterling depreciation Weaker outlook for US economy Will be watching the mortgage market closely to see how lower FRM’s affect the housing market Available on

TODAY’S YIELD CURVE

Interest rate yield curves are the point where the BULLS meet the BEARS They are NOT a prediction of where interest rates will be at a future point in time

Statistically, the MPC move rates more often in the months where there is an inflation report ie February, May, August and November