Thursday, November 6, 2008
The Council of Mortgage Lenders on a collision course with the Government.
Homeowners warned not to expect cheaper repayments
Lenders warned homeowners last night that they should not expect cheaper mortgage repayments even if the Bank of England cuts interest rates today. Alistair Darling has said that banks receiving £37 billion of government funds should maintain lending at 2007 levels. However, the CML effectively gave the green light to its members to disregard the Chancellor's request, saying that it did not make commercial sense to insist or expect that lenders automatically would pass on cuts in Bank rate to borrowers. Melanie Bien, director of Savills Private Finance, the mortgage broker, said: “The Government has been calling on lenders to pass on the cut in interest rates to new borrowers. It seems the Government doesn't have very much influence over the Rock.”
Posted by mytimeisnigh @ 08:09 AM (1064 views)
11 thoughts on “The Council of Mortgage Lenders on a collision course with the Government.”
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paul says:
I do wish someone, somewhere would point out that this is exactly what the Bank of England and MPC get when they try to game the system – they lose credibility and control.
There is solid statistical evidence that the MPC has been playing truant on its remit to control inflation, and has been chasing house prices consistently for the last eight years at least. As a direct consequence, the market (LIBOR) has decided that the MPC is underpricing the risk associated with lending and hey presto! The LIBOR and Bank rate no longer match each other.
Slashing rates now to help the indebted (including – it should be added – the government) is curing the hangover temporarily but not curing the chronic addiction to cheap credit.
To put it another way, these banks just cannot afford to slash the rates they charge – this is about government vs banks survival, and right now, we all know who has the boot.
I just hope that history won’t mistakenly put this down to banks being greedy – they have always acting purely in their own self interests and right now, the government’s self interests and the banks’ do no align. Quite simple.
gardeniadotnet says:
1. paul said.. > I just hope that history won’t mistakenly put this down to banks being greedy
Usually agree with what you have to say. But this comment? Come on you’re having a laugh, surely?
gardeniadotnet says:
To put it simply (it’s all I can do)…
The banks’ greed led to the creation of SIVs CDS, CDOs and other instruments that even they don’t understand, yet that have a notional value of over a quadrillion dollars (yes really.)
This amount will never, ever be unwound. Thus the banks are technically insolvent. Now.
Thus they can’t pass on the bail-outs to their customers.
last_days_of_disco says:
Banks are shareholder owned companies tasked with making as much money for their shareholders while maintaining a viable business. Its not about greed per se. They are instructed to do so. The issue is that the renumeration committees of companies have been allowing stupid payouts to executives (i.e. not in shareholders interests, shareholders allowed them to do this).
As long as shareholders were in the trough with them, they didn’t care, but now things are tight, the shareholders are sunk and the executives have fled with their cash. Pursue them and get it back if it was not based on real performance, in many cases this is easy to prove (see UBS for an example of this). If the government does that across the board they will be helping to ensure a more sensible payment structure in the future.
And if they can’t/won’t pay, use a sentencing structure for gaol where they can shorten their stay by coming up with the cash. That works really well.
stillthinking says:
The problem with price fixing is that people withdraw from the market. Cheap bread in Zimbabwe is a good idea unless you are a breadmaker, in which case you need a different job, and ends up with a bread shortage.
How many types of mortgages were there a few years ago, around 3000, but now around 500.
There are many many mortgages out there which nobody wants, and the way to avoid getting lumbered with them is through making your price for that type uncompetitive.
I am not sure it is about rates, because rates kind of cancel out, the banks make money on the difference between deposit rates and mortgage rates. They give a 100K mortgage to somebody at 6%, which ends up as a deposit which they need to pay out at 5%. So they make money on the difference. In that case 1%. If the rates changed to 3% and 2% respectively, they are in exactly the same position making 1% profit. The differential is the key point.
And the differential must include the default rate and all costs. Given that the default rate costs depends on repossession, and that there will probably soon be political difficulties associated with repossession, also a political risk of mortgage holidays (such as Spain), and of course the cracking losses on recovery in a falling market… leads to much higher requirements for their costs.
This is why there aren’t many cards left to play with rate cutting, while lower rates do certainly make repayment easier, or if you like, transfer wealth from savers to debtors, there is a separate element within the rate which is increasing dramatically. There should also be a clearer message from the media that there is no “making it cheaper”, just that wealth is transferred between groups. Really its absurd the way we all swallow some magical cheaper message. How is it possible to make something magically cheaper? It is impossible.
What the idiot government doesn’t understand is that to lower the costs of borrowing they need to give carte blanche to the banks as far as recovery is concerned, and be quite clear that there will be no legal interference. They won’t do this of course. Brown and Darling are the real reasons rates (as in bank costs) are increasing. Brown and Darling are also the reasons why we need to opt out of limiting our work hours. Really a true Labour idea, so socialist, I salute them.
stillthinking says:
Also, lowering interest rates into a recession was tried by the last long serving Labour government, as was devaluing the pound. Ending in a disaster which we are going to find shocking.
So far, our government hasn’t taken even a single step towards ameliorating the recession, and they are in complete denial. As long as they stay that way, things will get worse and worse and worse. There is no natural limit. People delude themselves with “How bad can things get” kind of implying not that bad.
The solution is simple and will be adopted in the end through necessity. Cut taxes and public spending.
Doh !
gardeniadotnet says:
…according to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland — the central bankers’ bank — the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion.
The main categories of the USD 1.144 Quadrillion derivatives market were the following:
1. Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:
a. Interest Rate Derivatives at about USD 393+ trillion;
b. Credit Default Swaps at about USD 58+ trillion;
c. Foreign Exchange Derivatives at about USD 56+ trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion.
D K Matai
That’s gonna take some bail-out!
stillthinking says:
If I bet a million pounds that I don’t have on the toss of a coin being heads with Tom, and offset that with a bet on tails, also for a million against Tim, then there would be 2 million of derivatives in the market.
But there isn’t anything to bail-out, because there isn’t really any money there. Even a 10p bail-out would be a waste of money.
gardeniadotnet says:
8. stillthinking said.. Even a 10p bail-out would be a waste of money.
Eh?
Try telling Brown, Darling, Bernanke, Paulson…..
stillthinking says:
I think the bail-out is for the non-performing loans (borrowing), not the derivatives(gambling). They definitely need some cash there. The only reason the UK will be in difficulty is if the losses are such that even the 12 year debt recovery period isn’t enough. Home buyers speculated and lost, if they can work off their loss we don’t have a problem. The essence of the problem is that people have been allowed to gamble with 12 years of debt servitude as stake money, and they lost. That is a bit too real for woolly headed Labour voters.
The problem really is the people who got the money i.e. the 100K winners from selling. Their deposits aren’t backed up by their house purchasers.
What is a bit weird is that people who ‘sold’ their house in 1997 also lost out and in exactly the same way.
Sell in 1997=Buy in 2007. But that wasn’t a scandal. They still had to pay out the money on their housing costs over the next decade though. Selling at the bottom is just as costly as buying at the top. I think things will work out OK, but in an unfair way. People who sold at the peak will end up owning more property than they started off with, and the poor will end up with less property and more debt. That seems like a fully functioning system to me.
gardeniadotnet says:
@ stillthinking
Forgive me for ‘cherry picking’ from your well-reasoned argument, but it’s the only way I can work.
You said…
I think the bail-out is for the non-performing loans (borrowing), not the derivatives(gambling).
This for me is the issue at hand.
It is widely recognised now that the situation we are in, both nationally and globally, can be described as a house of cards ‘pyramid’.
My point is that the non-performing loans are at the base of pyramid and when this critical tier collapsed, then so did the rest. The derivatives tier is at the top and has really collapsed already (August 2007), but there are LOTS of hands trying to support the edifice artificially.
It’s only a matter of time now.