Monday, Jul 13, 2009
It never rains but it pours
FT: Borrowers hit with steep rise in home loans
"Some of Britain's biggest lenders have pushed up sharply the cost of popular fixed-rate mortgage deals, in defiance of ministers' calls for more competition to revive the housing market. Banks rescued with billions of pounds of taxpayer money are among those that increased interest rates yesterday or withdrew deals. Northern Rock, the state-owned lender nationalised last year, raised the cost of some of its deals by as much as 0.6 of a percentage point, taking its two-year fixed-rate to 5.09 per cent and its five-year deal to 6.29 per cent. The Bank of England's base rate is 0.5 per cent. Last night, Royal Bank of Scotland, which is 70 per cent- owned by the taxpayer, pulled some of its best mortgage deals from its website, said London & Country Mortgages..."
32 Comments
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1. doomwatch said...
If they attracted deposits from savers with decent rates, these idiots wouldn't be at the mercy of the money and bond markets so much
and they could actually controll there "business" in a sensible, stable manner.
That's assuming savers still exist in the UK; apart from us HPC vets.
2. bluebeach said...
Please tell me what purpose the Base Rate actually serves? It seems to me that very few institutions take any notice of it now, except savings rates of course.
3. mark wadsworth said...
BB, the base rate serves no purpose whatsoever (apart from fouling things up) and never did, never will.
4. peter_2008 said...
So, now, how GB is going to buy votes using cheap mortgage?
This is the paradox - in the desparate search of good news and greenshots, the government engineered a spring bounce which cost us £1 Trillion Pounds so far. But the spring bounce sucked out the little remaining cash out of the economy. With no cash and no liquidity left, here comes high mortgage rate and 2nd Credit Cruntch.
5. inbreda said...
I am piling all my savings into a current account with a view to withdrawing the lot. Scarey as the glubberment can steal it with inflation - but then having it in the bank at such artificially low rates isn't much better. If savers voted with their feet and withdrew all of their funds, the banks would have to take notice. That is exactly what I am doing.
6. letthemfall said...
inbreda
What will you do with all your dosh? If everyone withdrew their money we'd have another financial panic.
7. inbreda said...
panic? Maybe the banks would panic - and they would have to start offering decent interest rates as a result. At the moment it seems to me like price fixing - illegal in any other industry.
Besides - why would I care if there was another panic?
8. Neil B said...
0.5% isnt exactly a 'steep rise' but not wanting say this but didnt some of us tell that IR rises were inevitable?
9. mander said...
Profit relates to a makable margin and volumes. This applies to banks too. Now volumes are gone in the UK mortgage market and in the US we have had already 3 in 10 banks being swallowed by the bigger fish, but in the UK if the banks do not start eat from eachother they will have to put the prices up big times.
10. bluebeach said...
Like Inbreda, I feel that my good money management and lack of greed has been punished by GB. Those who have over stretched and lied to gain massive credit are now been greatly rewarded and bailed out by our taxes.
I'm not in a position where I need to move my savings out of banks (fixed rates at the moment), but I do not buy into the view that I should "invest" in property to safeguard my savings.
These tactics should not be available for a government to use just to hold their slim grip on power.
Why not another panic.. yes indeed Inbreda.. what will they do then?... the pot in empty!.
11. Puppee said...
i agree with inbreda but we don't have to take our savings out of every bank , just pick the biggest bank and everybody with an account no matter how big or small withdraw your cash put it in a different bank so its still safe this would bankrupt the biggest bank then we just threaten to do the same to each bank until the govt and b.o.e realises that savers have had enough of this bulls**t, i said this months ago on the forum
12. mrflibble said...
Slightly off on a tangent, but since we are talking about savings, where is the best place to stash a bundle these days without it being tied up for years on end?
The best I've seen recently is the Newcastle BS, 5% Bond (and ISA), fixed for 5 years plus no penalty access with 90 days notice.
13. Bearinthewoods said...
I'm pretty sick of the gummint robbing me of the interest on my hard earned savings to subsidise the mortgages of bulls that come on this site to gloat over how it's "cheaper to buy than rent" By the way, I'm a mortgage free home owner who still wants the market to fall by 30% - 40% so FTB's can buy a home without mortgaging their entire lives to this rotten slavish system that Nu Labour had flogged the gullible British public. I'm with Inbreda on this one, I've got a six figure sum in the bank and I'm seriously considering pulling it out and stashing it somewhere safe and b*gger the pittance I'm being paid! If enough savers took this action the cretins at numbers 10 & 11 would have to do something...problem is, God knows what it would be!
14. Notbuyingoneyet said...
@5. I too am removing my savings from the Bank. I am so insulted by the 0.5% rate. I am buying premium bonds instead. The amount I am 'losing' in interest is so small, that should I win anything, this would be a better return on my capital. Plus I may win something significant and if I don't, I haven't really lost much anyway. I'll go with the odds.
15. mark wadsworth said...
Inbreda's plan has superficialy appeal, but it wouldn't work.
If you withdraw from Bank A and deposit with Bank B, Bank B would then just deposit the same money with Bank of England who in turn lend to Bank A again.
If you withdraw from Bank A and put in National Savings, the government then lends it straight back to Bank A.
Even if you withdrew it all in cash, when you buy 'cash' is just an interest-free loan to the government, so the government would then take all that money and lend it back to Bank A.
16. uncle tom said...
The mortgage lenders have had to take a big hit from some of the tracker deals they wrote, but as most of those were relatively short duration, the pain will pass from them to the borrowers when they come an end.
Following on will be big losses from defaulting borrowers. The tax payer will end up bearing much of that pain, as the worst losses will land on the books of B&B and NR, but other lenders will also have to make increased provision. I would expect the difference between LIBOR and mortgage rates to settle at around 1% above the long term average for a few years, before gradually narrowing again.
17. cyril said...
@Bearinthewoods - you could always buy a couple of gold bars and hide them under the matress.
18. growler said...
@mrflibble: seen that too. Small print looks OK too. You have to leave £5000 in there until maturity, but to make that 5k seem like pain interest rates for the rest of my savings would have to be huge. If the rate really was that huge, 5k ain't going to make much difference.
Moving cash: one way to make the cash vanish is to take it overseas into Swiss Francs. Interest rates are low - but they're not exactly sky high here.
I think markets are now seeing what we on here have thought for some time. We've had a spring bounce (QE), now the money is all but gone. Unemployment creeps up. Export sales are not going to make use of "cheap" sterling as everyone else (apart from some BRIC nations) is in recession. Car industry is still on its knees - this reverberates everywhere. Commodities are at low levels with little prospect for huge demand. India and China are busy investing in themselves - so when the West does recover, there will be huge and active competition to the resurgent West that will be busy paying off the loans they made of each other and themselves.
Who apart from people who must move with work or other non-voluntary movers is going to be buying a house? I think we will be in for a very long term flatline after the market falls another 15-20%. VAT and taxes are now unannounced Government Policy whatever the colour. I hope that Conservatives and Liberals get in (to find a job for Vince Cable) on the basis that unity Government not bent of spend, spend, spend is what the country needs. Once thing is for sure: Everyones disposable income will fall; significantly - and for some time.
19. Bearinthewoods said...
Cyril@16
Nice one Cyril :-) Anything to keep my hard earned liquid assets out of Crash Gordon's control. As a matter of note, I'll bury the bars in my woods; much safer (and more comfortable) than in my mattress! FYI, 18 months ago, I saw this coming and converted all my various pensions accumulated over 40 years of working into a SIPP and against all the "expert" advice, kept it in cash! I've not earned much on it but I've not seen 40% of it disappear down the plug hole as the world indices have nosedived! Happy days, my advice is keep it simple, keep it liquid, it won't be long before cash is king and bricks and mortar will be priced at distressed sale levels. Before anyone thinks i'm being a bit of a "know all" I'm not, it's just that I got badly burnt by taking the advice of a FA about thirteen years ago and bought into a share portfolio taking, of course "the long term view" and ended up ten years later only losing £15K plus the interest I would have made during that time. Well, I guess it made me the bear I am :-)
20. peter_2008 said...
Neil B @ 8 0.5% is a massive increase. If you are a BTL on 5% interest only mortgage, you monthly payment just shot up by 10%.
I noticed a lot of people particularly the young ones REALLY don't have any idea how devastating a seemingly small 0.5% increase in the rate can be. I guess that's why this time, more homeowners will be shocked by the sudden change of fortune from now on, as they never prepared for it.
I am no conspiracist, but I reckon this is an intentional/unintentional consequence of NuLabo swapping math/science modules with art and dance. Labo probably just wanted a lot of dumb people, so they can stay in power. Dumb people ending up with explosive mortgage (because they can’t do math) – is just a by-product.
21. britishblue said...
Mark @ 3 The lowering of base rates does actually does serve a purpose. It acts as a trogan horse for the banks to refinance themselves and steady up their balance sheets. If base rates were at 5% the banks would find it difficult to charge mortages at 9.5%. It would cause the economy to go into freefall.
Reducing the base rate to .5% is allowing the banks month by month to increase the difference between what they borrow at and what they lend at, thus increasing their profitability. You can be rest assured if the base rate starts to go up, the mortgage rates will follow suit. they wont revert back to the differences before the recession. All in all this means that the government in effect are outsourcing taxation to the banks, because everyone with a mortgage, loan or credit card is going to get increasingly hit over the next few years and savers are not going to get the returns that they think they should.
22. mrflibble said...
Cheers growler, nice to get a second opinion on that Newcastle account.
Agree with your analysis on disposable income too, whether we like it or not our living standards are going to suffer, or we pay more to maintain them, in which case our wealth is going to suffer.
Gordon has painted us into a corner, we now either knuckle down and pay the debt off or we default. Printing enough money to go around is an option, but too much printing and the money just looses its value faster than they print it.
Whatever way to slice it the future of house prices is looking grim...
23. bluebeach said...
"Affordability has never been so good" they tell FTBs.....until rates go up that is!!!!
24. letthemfall said...
I share inbreda and bluebeach's irritation with the emphasis on borrowers while savers are getting squeezed. But that has been pretty much so since the Lawson boom, and is the phantom source of the economic growth to a large extent. Yet, interest rates are rising now, especially on fixed rates, which applies to both savings and mortgages. So savers may yet have the last laugh, if there's anything to laugh about.
25. mark wadsworth said...
@ British Blue: "[the BoE base rate] acts as a trojan horse for the banks to refinance themselves."
Yes, agreed, of course, as the interest rate spreads in the FT article suggest. But this is only a short term thing, in the long run it serves little purpose.
26. britishblue said...
@ Mark wadsworth. Can we be sure it is only a short term thing? If either a Conservative or Labour governement are forved with the choice to increase taxtation to paye for the bank debt or to instead let the banks rape all their customers, they may go for the the latter option. I think we might be seeing a change that is here for a long time.
27. mark wadsworth said...
@ BB, that's a rather depressing but probably correct point.
Looking at the other side of the equation, the key to electoral success for both the Red Wing and the Blue Wing of the Home-owners' Party is to depress real interest rates paid to savers in order to funnel as much money as possible into housing (as LetThemFall points out above). Traditionally they have gone for massive inflation, but that doesn't seem to work so well without currency controls, so they'll do it this way instead.
28. peeping tom said...
Savings rates are slowly creeping up as the banks and building societies realise they need to compete for savers. I just opened a monthly savings account with the Loughborough Building Society paying 4% gross. Hardly brilliant but as it's a variable rate, then I expect it to rise with the base rate. When I went into the Nationwide to set up a standing order, the cashier was quite surprised when I told her the rate. I guess that the Nationwide is lagging and will wake up when savers start moving their deposits elsewhere.
29. inbreda said...
@15 Mark - I was planning to remove it from banks and stuff it under the proverbial mattress for a short while. Even if I just did this for a few months - the lost interest would be bearable (quite easily!!) and even if it has no effect it is still a protest vote.
30. Enough Already said...
ICICIbank has 4.4% interest rates.
31. tenyearstogetmymoneyback said...
Notbuyingoneyet said...@14. I too am removing my savings from the Bank. I am so insulted by the 0.5% rate.
I am buying premium bonds instead.
Funny you should say that because today I started cashing in my Premium bonds.
The 1% prize fund is a complete joke when I have an account I can pay into paying 3.75% (taxed) at Yorkshire Building Society.
What is clear, and is mentioned in Saturdays Mail, is that you need to keep checking your savings accounts rates
and be prepared to move your money if you aren't getting a good deal.
:- Duncan
32. Maya said...
Looking at the other side of the equation, the key to electoral success for both the Red Wing and the Blue Wing of the Home-owners' Party is to depress real interest rates paid to savers in order to funnel as much money as possible into housing (as LetThemFall points out above). Traditionally they have gone for massive inflation, but that doesn't seem to work so well without currency controls, so they'll do it this way instead.