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Banks And Building Societies Under Fresh Pressure To Cut Mortgage Rates

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http://www.telegraph.co.uk/finance/persona...gage-rates.html

The rate, known as Libor, fell below one per cent for the first time since it was set up in 1986. This means that banks, in theory, have never been able to borrow money so cheaply.

However, home buyers have failed to benefit, with the average two-year tracker rate mortgage for new customers climbing from 3.73 per cent a month ago to 3.77 per cent yesterday, according to the financial publisher Moneyfacts.

Mortgage experts said lenders were being “unfair†to home owners and their stubborn refusal to cut rates was threatening a recovery in the housing market and the wider economy.

Some of the worst offenders are the nationalised and part-nationalised banks — Halifax, Lloyds Banking Group and Northern Rock. None of them offers a tracker rate mortgage below 3.25 per cent, despite being given billions by the taxpayer to rescue them from collapse.

Earlier this week, banks were accused of “ripping off†consumers after it was disclosed that they were pushing up the price of fixed-rate mortgages to their highest level — relative to the Bank of England rate — for at least 20 years.

Vince Cable, the Liberal Democrat Treasury spokesman, said: “I just do not accept that it makes any sense for the nationalised and semi-nationalised banks to be building up capital reserves. There is no risk they will fail because they are owned by the taxpayer. Their primary requirement is to support the economy through lending.â€

Mick McAteer, a former head of policy at Which? and now the head of the Financial Inclusion Centre think tank, said: “Banks have been using the cuts in the Bank of England rate to increase their revenues by billions.

“There is a basic lack of competition and they have a stranglehold. People are paying more than they should for credit cards and overdrafts as well.â€

When banks borrow money to fund their variable rate mortgages, such as tracker-rate deals, they go to the wholesale money markets. Here, the cost of money is set by a rate known as three-month Libor.

This rate has fallen steadily in recent months as City investors become increasingly convinced that deflation will remain for some time and the Bank of England will keep its Bank rate at 0.5 per cent into next year. In March, three-month Libor was above two per cent. Yesterday it fell from 1.01 to 0.99 per cent.

The banks have a huge hole, they need taxpayer cash and they also need to rip off the said taxpayer by over charging for borrowing money which may or may not exist.

Why the surprise.

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Why the surprise.

Who's surprised? It's happening everywhere.

In the Eurozone, the ECB lent Euro 442 bn for a year @ 1pct to the banks, so they can buy high yielding government bonds.

QE by stealth, very subtle :rolleyes:

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3 month libor.

Haha, even the worst muppet can pay a mortgage for 3 months.

Therein lies the discrepancy + the fact that the avaricious banking sector want to screw as much money as possible out of the economy.

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I am currently restructuring some business debt (from a strong position, never fear!) and am getting hints that they expect margin to increase.

It won't happen, but only because I'm preparing early so I can shop around properly. Joe ublic will end up payinmg what he's told.

The banks are widening margin and there's no good reason for it.

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why is Libor low, one might ask.

I would submit its low because banks cant lend the money out at a decent rate, so S+D dictates that to get rid of your spare cash you gotta sell it cheap.

so, either QE, which is free, is giving many many banks the spare they need, or transactions in general have fallen and people arent borrowing anyway.

Wait till mid to end September and October when they all come back from their holidays!.

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I'm disappointed with Vince Cable's comment:

"I just do not accept that it makes any sense for the nationalised and semi-nationalised banks to be building up capital reserves. There is no risk they will fail because they are owned by the taxpayer. Their primary requirement is to support the economy through lending."

This is the equivalent of saying: "State-subsidised banks do not need to assess loan risk because any losses are covered by the taxpayer. We have a bottomless pit of money that can be used to support the economy through increased debt and the banks should start using it."

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I'm disappointed with Vince Cable's comment:

Couldn't agree more.

As well as the point you make, there is also an issue of fairness. If the capital requirements are abolished only for the nationalised banks, who can then lend on easier terms, surely that will cause the non-nationalised banks to lose business, driving them further into the excrement?

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I'm disappointed with Vince Cable's comment:

"I just do not accept that it makes any sense for the nationalised and semi-nationalised banks to be building up capital reserves. There is no risk they will fail because they are owned by the taxpayer. Their primary requirement is to support the economy through lending."

This is the equivalent of saying: "State-subsidised banks do not need to assess loan risk because any losses are covered by the taxpayer. We have a bottomless pit of money that can be used to support the economy through increased debt and the banks should start using it."

I agree. Vince is turning into something weird. It's not a Commie or a Capitalist, just something weird.

They need to build up capital because the next rule change is going to be big increases in capital requirements, and it's not something the UK has control over.

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The banks have a huge hole, they need taxpayer cash and they also need to rip off the said taxpayer by over charging for borrowing money which may or may not exist.

Why the surprise.

what would happen if the public demanded to see the money? i suppose the bank could just print a load of money and fool the public?

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Couldn't agree more.

As well as the point you make, there is also an issue of fairness. If the capital requirements are abolished only for the nationalised banks, who can then lend on easier terms, surely that will cause the non-nationalised banks to lose business, driving them further into the excrement?

that is correct, but this is the flaw in democracy.

what sounds better to a voter in the doo doo needing a loan....."we are ensuring the banks are storng and tough and lending will remain tough to protect your money and the bank for the long term", or "its wrong that we've paid to save the bank, and not get some payback, its our money after all."

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What people are forgetting, including some on here, is that historic mortgage rates average around 3% above the BoE rate. It was only in the boom time that mortgage rates fell towards the BoE rate. So no, the banks aren't ripping people off, they have just returned to what is safe and sustainable.

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I'm disappointed with Vince Cable's comment:

"I just do not accept that it makes any sense for the nationalised and semi-nationalised banks to be building up capital reserves. There is no risk they will fail because they are owned by the taxpayer. Their primary requirement is to support the economy through lending."

This is the equivalent of saying: "State-subsidised banks do not need to assess loan risk because any losses are covered by the taxpayer. We have a bottomless pit of money that can be used to support the economy through increased debt and the banks should start using it."

But he is also saying there is no risk the UK banks can fail and create losses for anybody. Which could well be true if the whole thing is managed well. And part of the management plan is to ensure that the UK continues to be able to borrow at reasonable rates. Vince in opposition seems to be saying that Britain PLC is in good shape and has no chance of failing. He is also saying that it is fine by him if the government spends away to avoid deflation - which is the BOE objective. Seems to me like he is on board and up to speed.

The dissapointment might be none of the above is deflationary.

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What people are forgetting, including some on here, is that historic mortgage rates average around 3% above the BoE rate. It was only in the boom time that mortgage rates fell towards the BoE rate. So no, the banks aren't ripping people off, they have just returned to what is safe and sustainable.

Agreed

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What people are forgetting, including some on here, is that historic mortgage rates average around 3% above the BoE rate. It was only in the boom time that mortgage rates fell towards the BoE rate. So no, the banks aren't ripping people off, they have just returned to what is safe and sustainable.

normality...so much more boring than the boom.

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That is not true actually. Most of the purchases of bonds in the Eurozone is for private sector covered bonds - this is the favoured policy instrument as opposed to buying government bonds of which there is a shortage in the Eurozone for monetary policy purposes.

Nope, we are talking about two different things.

The ECB has bought private sector covered bonds directly.

The banks who borrowed Euro 442 bn form the ECB are buying mainly govies (this is what bond traders are saying at any rate).

Edited by VoteWithYourFeet

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I agree. Vince is turning into something weird. It's not a Commie or a Capitalist, just something weird.

They need to build up capital because the next rule change is going to be big increases in capital requirements, and it's not something the UK has control over.

It's called a Liberal Democrat.

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I think there is a broader point about who picks up the tab.

Should it be the borrowers of the bank who should help cover the costs of default, or should it be the taxpayer?

There is clearly a renter versus owner and young versus old metric to this too.

Clearly on balance the policy suggested by Vince is to the detriment of the young, the taxpayer and the non owner on average.

The tax payer could come out of this doing well if inflation is maintained, nominal prices are stabilised inside a few years and losses are kept within historic norms etc etc. I suppose it depends on how negative you are about the future as to what losses and defaults you expect to see.

I also dont see a benefitial outcome for young people created by falling house prices large losses in employment and so forth since once the bottom is reached, many young people will be unable to buy anyway. The people who will benefit from that kind of deflation are the cashed up richer folks who made a pile earlier on and then sold to rent and so forth. These are the people who need to be scared into spending money to keep velocity reasonable. I dont know about you but although i am in two minds and dont know the future and can see all manner of scenarios, the inflationary one does sort of scare me and i find it hard to believe my pile of cash is going to get more and more valueable. It just cannot possibly be part of the plan for that to happen.

Edited by aliveandkicking

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LTV bands are the problem for alot of FTB's.

Well I mean prices are too high ;)

edit: - which one are we expecting prices to fall or LTV's to change ?

** or maybe we just 'stabilise' at low volumes (fewer buyers, and fewer sellers)

Edited by Ash4781

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