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lypsey

Borrowers Face Record Rises In Rates

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http://www.thisismoney.co.uk/mortgages-and...e_id=8&ct=5

It says "Figures show that the average rate on a five-year fixed mortgage rose by 0.63 percentage points to 5.56% in June - the biggest monthly rise since records began 14 years ago.

At the same time, the average rate on a £10,000 personal loan rose by 0.87 percentage points to 10.32 per cent, also the largest-ever monthly rise."

Libor is under control, I wonder why this is happening

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Banks now have free reign to gouge the taxpayer, the public and business, both directly via government sponsored theft and through the market.

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Rates for savers have to go up to attract funds (and they are - 5% gross on savings now available) so rates for borrowers go up.

This is the real cost of money and takes account of currency risk and risk of borrower default. You can only fork over the savers for so long

Edited by dr ray

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http://www.thisismoney.co.uk/mortgages-and...e_id=8&ct=5

It says "Figures show that the average rate on a five-year fixed mortgage rose by 0.63 percentage points to 5.56% in June - the biggest monthly rise since records began 14 years ago.

At the same time, the average rate on a £10,000 personal loan rose by 0.87 percentage points to 10.32 per cent, also the largest-ever monthly rise."

Libor is under control, I wonder why this is happening

I would guess that the link to LIBOR has been broken since that applied when the banking system as a whole had some money so they could borrow excess funds from each other.

Now that securitisation has died, I wonder if the mortgage rates are now linked to the banks ability to borrow externally, I understand this is based on swap rates.

VMR.

(Standing ready to be corrected)

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Rates for savers have to go up to attract funds (and they are - 5% gross on savings now available) so rates for borrowers go up.

This is the real cost of money and takes account of currency risk and risk of borrower default. You can only fork over the savers for so long

& risk is being priced in - +ve feedback loop - higher rates will trigger more defaults which will increase the risk premium and so on.

Fingers crossed this will happen fast enough to ruin Gordon's election campaign (I don't like Cameron either though). Next leg down imminent?

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There are 2 positives here:

1) old borrowers on trackers are on once in a lifetime low rates which will help prevent deflation

2) new borrowers are on appropriate rates to prevent high inflation. Unfortunately house prices haven't dropped enough to compensate for higher rated

The only losers are savers who do not want to take on any risk but taking inflation into account the return from cash has always been pitiful

The relevance of the bow rate is only to those on trackers and it is looking increasingly likely that boe rate will remain very low for sometime

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Banks are under no obligation to pass on low base or LIBOR rates - unless it's a tracker mortgage which specifies in the ts and cs that "...the interest rate is set at X per cent above the base rate / LIBOR rate".

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There are 2 positives here:

1) old borrowers on trackers are on once in a lifetime low rates which will help prevent deflation

Trapped, unable to move house (e.g. for a job) without losing their advantage. Yep, great for everyone: broken property market, broken jobs market, broken economy.

2) new borrowers are on appropriate rates to prevent high inflation. Unfortunately house prices haven't dropped enough to compensate for higher rated

The only losers are savers who do not want to take on any risk but taking inflation into account the return from cash has always been pitiful

*only* losers? "Homeowners" who were missold as FTBs in the bubble are amongst the biggest losers: some of them in negative equity with it. Not to mention people who invested in the productive economy as it was bled dry to feed first house prices, then bank bailouts.

The relevance of the bow rate is only to those on trackers and it is looking increasingly likely that boe rate will remain very low for sometime

Translation: you can't see an end to the economy being in denial and starving itself. Sadly, neither can I, until the public-sector-debt bubble bursts.

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I have noticed mortgage rates jumping in the last few days. There is still a cracker 5year fix at 4.45%, but this is being pulled in the next few days. The next comparable rate for me (40% deposit) is almost a percentage more.

Over the last month, I've been tempted to buy because of the low rates and even lost £500 starting the buying process. Now I'm pulling out, I think. Unless they accept a huge gazunder.

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They have to make the losses up somehow.

They get you to over borrow to profit, ramp up the housing market and when it collapse they make sure you pay a nice hefty margin on your loan.

O to be a banker.

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Five year swap rates jumped last month, but are now declining

so what has changed, A, to induce the jump, and B, to induce the decline?

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Anyone who borrows money these days needs a frontal Lobotomy.

All you mortgage holders are going to empty your bowels when Merv raises the rates........ :blink::ph34r:

Banks buy properties, not people!!

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Rates for savers have to go up to attract funds (and they are - 5% gross on savings now available) so rates for borrowers go up.

This is the real cost of money and takes account of currency risk and risk of borrower default. You can only fork over the savers for so long

It would be nice to think we were returning to such old fashioned thinking and I could be wrong but I am not sure it is as simple as that Nationwide recently reduced rates for savers AND put up interest rates :

Mortgage rates set to rise as lenders struggle to cover cost of bank victims scheme

By Daily Mail Reporter

Last updated at 5:05 PM on 21st May 2009

[

b]Six out of 10 building societies think they will have to raise their mortgage rates to cover the cost of compensating savers of failed banks[/b], research showed today.

The majority of building society chief executives said the levy they had to pay to the Financial Services Compensation Scheme (FSCS) would have a 'considerable impact' on their business.

Around 60% said they may have to raise their mortgage rates to offset the cost, while 53 per cent said their savings rates may have to fall.

The FSCS pays redress to people who lose money when a financial institution collapses, and it has recently compensated savers of internet bank Icesave, Kaupthing Singer and Friedlander and Bradford and Bingley.

But building societies argue that the scheme, which is funded through a levy on all financial institutions, is unfair as the levy is based on the level of consumer funds institutions hold, rather than their risk of collapsing.

The sector says the current high levy places a disproportionate strain on societies, with Skipton Building Society citing its share of the compensation bill as a major factor contributing to an 86% dive in profits earlier this year.

The research, which was released at the Building Societies Association's (BSA) annual conference in Harrogate today, also found that chief executives expect house prices to fall by an average of 10 per cent this year.

Building societies said the current low interest rate environment was making it difficult for them to manage the needs of both their savers and borrowers, at the same time as maintaining their profit levels.

Another interesting snippet came from the Rightmove HPI June 2009 :

With limited funds to lend, rationing of mortgages by raising interest rates and requiring large deposits is likely, as demand recovers with the increased number of sales.

Many have thought lenders increasing interest rates at a time when the market is just showing some signs of stabilising is madness, but as RM rightly pointed out, mortgage funds are severely restricted with the RMBS market shut / low interest rates leading to dwindling deposits / etc etc and that is not going to change at any time soon they HAVE to restrict lending and slowly those rates HAVE to rise.

The article last week:

Even if they wanted to

said:

In 2007, banks made 800,000 mortgage approvals, but only 400,000 were made from their own resources. Banks today are already offering mortgages at an annualised rate of about 375,000 approvals – nearly as much as at the peak of the market.

So, how much more can banks realistically do? Perhaps they can lend another 20%, to reach a total of 450,000 mortgages. Add in the struggling building societies at 100,000 loans (a third of their peak) and 20,000 from specialist lenders (down 75%) and the total may be just 570,000 a year.

What does this mean for house prices? History suggests the balance point lies at about 900,000 approvals; below this, prices fall and above it prices rise. So, there may not be enough money in the system to keep house prices rising.

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