Saturday, Mar 13, 2010
Some mortgagees acting sensibly !
BBC: Mortgage Overpayments Encouraged by Lloyds
An analysis by the Council of Mortgage Lenders (CML) last year suggested that a quarter of the £20bn annual interest saving, brought about by the Bank of England's 0.5% bank rate, was showing up in higher mortgage capital repayments.
The only question left is what the other 75% are doing with the money they save. Probably having a ball as Smugdog suggested yesterday.
Posted by tenyearstogetmymoneyback @ 08:34 AM (557 views) Add Comment
3 Comments
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1. estrader said...
"Figures suggest that about one in four borrowers have used the money to accelerate their repayments."
Doesn't this go against the ‘Borrow and spend’ consumerist society that Labour is hoping will get the U.K out of recession? They want people to spend rather than save or pay down debt which is why they reduced VAT and Interest rates. I see it as a zero-sum game.
2. paul said...
Q. So, does the Bank of England encourage this behaviour?
A. No.
3. mark wadsworth said...
An analysis by the Council of Mortgage Lenders (CML) last year suggested that a quarter of the £20bn annual interest saving, brought about by the Bank of England's 0.5% bank rate, was showing up in higher mortgage capital repayments...
*epic fail*
The 0.5% is not the rate that the BoE charges the banks for lending to the banks, it is the rate that the BoE pays the banks for taking deposits from banks.
Sure, when banks are setting mortgage rates, their starting point is the 'risk-free' rate of return, which is indeed 0.5%, but as we well know, market interest rates paid on mortgages or credit cards are largely dictated by the perceived risk of any loan, which is why the marginal interest rate on higher loan-to-value mortgages is in excess of ten per cent and on credit cards in excess of twenty or thirty per cent. But when commercial banks' borrowing "from the Bank of England is normally conducted at the base rate plus another one per cent or more" (per the BBA).
The banks are being propped up by rather more nefarious means, like Special Liquidity Scheme, guarantees, capital injections and so on, which underwrite about one quarter of all mortgage lending. Finally, as a fig leaf, the government has imposed these loony 50% income tax rates, which claw back one or two per cent of the cost to the taxpayer at most.
The whole thing is an outrage of course - the government is paying a marginal interest rate well in excess of five per cent (at taxpayers' expense) to lend money to commercial banks at two, which the banks then lend back to mortgage borrowers at four or five per cent to invest in pre-existing assets with a more or less zero return to the economy (it's the same people in the same houses), but hey.
*/epic fail*