Thursday, Aug 19, 2010
Housing Minister and other insignificant mortals winge about banks
Telegraph: Home owners pay £1,700 a year more for fixed-rate mortgage deals
Home owners are paying £1,700 a year more for fixed-rate mortgages as banks enjoy record profit margins. Then again fixed rates are not much use to banks if interest rates go up! Full of cringeworthy quotes.
Posted by enuii @ 09:57 PM (1286 views) Add Comment
13 Comments
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1. mark wadsworth said...
Tee hee, that's what happens when one part of the Home-Owner-Ist coalition (the banks) gets too greedy at the expense of the other part (homeowners who want prices to go up).
"Hey! That subsidy was supposed to be used to inflate my unearned house price gains!"
"Nope. We're keeping it to inflate our profit margins!"
"No! The government said you have to lend it to 'aspiring first time buyers'"
"You must be kidding! We're happy to let prices fall - if they do, we'll just ask for more bail out money; and when they start rising again, we can earn ourselves silly all over again!"
"That's not fair! I want it!"
"Ha! We're keeping it"
and so on.
2. tenyearstogetmymoneyback said...
And who can predict what interest rates will be in two years time ?
I think it is unlikely they will be lower than they are now.
You certainly couldn't say that five years ago which is the figures they are using for comparison.
3. 51ck-6-51x said...
MW - love it. The reality is that the banks also have the further retort that they must now increase these margins to protect themselves against further falls i.e. "We know that as a group we'd get bailed out, but individually who knows which of us will be the lucky ones who do not get left to go to the wall, so we must keep more margin than our competitors to try to avoid being in the group leaving themselves in the hands of the politicians" - not really a competitive play, but that's what happens when politicians try to influence markets for the greater good of spreading the inevitable pain ;p
4. ontheotherhand said...
I don't understand the point of 2 year or 5 year fixed rate mortgages anyway. Take the floating rate mortgage and squirrel away the difference each month as cover for higher repayments should interest rates rise. Either that or create the product yourself more cheaply by hedging rates on some spreadbetting site.
5. mark wadsworth said...
OTOH, in the very long run, you are indeed better off with SVR. But you know what JMK said about the long run.
I must cheerfully admit to being old fashioned and Germanic about this, when I bought my house in 1998 (when they were still reasonably cheap, although the bubble had clearly started again), I worked out first what I could afford to pay each month (about £800) and how much I could borrow if I wanted to pay it off over ten years at a fixed rate. The only such fixed rate I could find was Halifax (6.89%, obviously I spent a large part of the next ten years kicking myself, but hey, it was still cheaper than renting) which = a mortgage of about £75,000 so I saved up £20,000 and had a budget of £95,000. So I bought a house for £95,000 and paid off the mortgage about two weeks before I sold my house in early 2008.
6. jack c said...
You have to understand guy's that most people do not operate disciplined personal finances and hence the appeal of a simple fixed rate over say 5 years ie the individual has certainty regarding the monthly payment and often they feel safer with this type of arrangement hence there popularity.
7. ontheotherhand said...
MW. I'm not talking about the long run. I'm talking about 2 and 5 year fixed year mortgages which seem to be the norm in the UK, with the 10 year deals rare and even more expensive. Indeed this article makes the comparison on a 2 year product where I say take the floating rate but save the difference in case interest rates rise above the fixed rate you would otherwise be paying.
No brainer in the US to get a cheap 25 year mortgage you can afford. A colleague in the US did exactly that last year and borrowed for around 4.5% fixed for 25 years. I'm amazed that a man with a job can borrow like that when some countries can't and of course many companies can't. Actually, scratch that. The markets rightly consider a person with a job as a better bet than a country with a bloated welfare state and public sector.
8. uncle tom said...
Sounds a lot, until you start trying to estimate how much they are losing from the softly softly approach to repo-ing homes that have stopped paying their mortgages, the amount they are losing from bad debt in the commercial sector, the likely losses from exposure to the American, Irish and Spanish property markets (to name but three..) and the likely losses from UK residential loans, when the market finally falls over..
..it would not surprise me if UK BTL loans alone stack up eventual losses of over £50bn - three times more than the lenders are currently setting aside each year..
9. mark said...
Talking about the soft approach we have a friend in the USA who has been effectively been foreclosed on, however he is still living in the house some 14 months after he stopped paying the mortgage, he has since bought another house with the money he was not paying mortgage with, he is renting new house out and still living in the bank owned house because of the back log of evictions, he reckons he could live there for at least another 12 months for free...
what a system!
10. jack c said...
Picking up on uncle tom's point - from todays FT and Mortgagestrategy
Lloyds Banking Group is set to pull Bank of Scotland out of Ireland and cease all lending by the end of the year.The decision, follows closing down of the broker and retail divisions of the bank earlier this year. Last month the bank admitted that 90% of its Irish commercial property assets were toxic.
Full article@ www.mortgagestrategy.co.uk/1017177.article?cmpid=MSE01&cmptype=newsletter
11. mark said...
It would be amazing if foreign banks started pulling out of the UK..
I really think we are just the next Greece, it is just being hidden too well
12. Urban Bear said...
See:
http://www.bankofenglandact.co.uk/
This looks like a possible solution to the banks abuse, it may even beat Georgism, however I think it needs more work e.g. ID security needs some work (e.g. unique ID digital cash), and a depreciating currency still looks like state fraud to me, it would be more honest to have variable administration fees (not taxes), to free up money.
13. uncle tom said...
"It would be amazing if foreign banks started pulling out of the UK"
It would Mark, but they won't.
Logically, bankers should be evenly spread across the globe, and by making full use of the technology be almost entirely working from home.
But they aren't, and they don't. There's an intrinsic illogicality and herd instinct about banking that shows no sign of going away.
London has become to banking what Wellington is to New Zealand - the capital, despite not being the biggest centre (and by some margin)
Every bank that has any pretence to the international stage has an office in London, despite some of those staffed offices having little or no constructive work to do.
It's the way it is, and the way the world's bankers are happy to arrange things. And despite the upsets of recent years, there's no sign of any fundamental change to the status quo. Britain is very well trusted around the globe to play fair - something we don't often appreciate, but is appreciated by others.
And however much you may dislike bankers and their remunerations; over the years this country has done very well out the trade..