Banks Defend Stance On Raising I R Despite Low Libor

[Realistbear]

http://business.timesonline.co.uk/tol/busi...icle6850259.ece

From The Times September 26, 2009

Banks’ group defends mortgage lending rates

James "Jim" Charles

The British Bankers’ Association (BBA) has jumped to the defence of mortgage lenders for the wide margins between Libor, the wholesale money market rate, and the cost of home loans, arguing that there is now little connection between the two.

Three-month Libor is used as a benchmark indication of the cost to banks and building societies of borrowing on wholesale money markets to fund new mortgage lending. However, the BBA, the trade body, in a paper to be released on Monday, argues that the economic indicators that until recently had governed the cost of mortgages “no longer applyâ€.

.../

The BBA has said that banks faced a number of pressures that were forcing up the cost of home loans. Interest rates that banks were charged on wholesale markets were far above three-month Libor, to reflect the increased risks they posed, and the cost of attracting savings deposits to fund new lending had also risen sharply in recent months, it said.

_____________________

So, IR are going to continue rising even if Libor remains static or even falls. Why? Because risks are not subsiding but increasing. Why would that be if we are recovering from the worlds greatest financial collapse in less time it takes to recover from a mild recession? Because we are not in recovery but in the early stages of a declining economy as evidenced by the reality of job losses, collapsing currency, faltering production and major BTLers trying to offload as quickly as they can.*

House prices have a long way to fall and the real action is only just beginning. Expect another 30-40% down to bring them into line with average earnings (which will also decline).

*http://www.bloomberg.com/apps/news?pid=20601087&sid=aetYJuhH_GsY

Sept. 25 (Bloomberg) -- Fergus Wilson, the former mathematics teacher dubbed Britain’s buy-to-let “King,†says he’s selling 700 rental properties before interest rate rises bring “slaughter†to landlords in the U.K. housing market.

[Bloo Loo]

well, they need to make profits....all those years of FAKE profits and bonuses have taken their toll.

As I said way back in 2007, there is only ONE way out of this....TRADE THROUGH....every measure taken has lengthened the window they can do this....if they dont, then nothing can save them. and there will come a time when nothing can be done....so if they want to survive, then now is the time to do it.

[@contradevian]

It's the new paradigm. Its different now.

[Bloo Loo]

It's the new paradigm. Its different now.

i would rather say its the fear stage just starting....only this time the banks are the ones fearful...fearful that they wont be able to lend enough....to few qualified borrowers.....so for the less qualified, rates will rise...in fact, the exact opposite of what happened in the run up to the crash.

[Joey Buttafueco Jr]

Can you borrow at LIBOR to fund fixed rate mortgages of duration in excess of 1 day. If not, then why is the comparison being made?

[porca misèria]

Interest rates that banks were charged on wholesale markets were far above three-month Libor,

Welcome the fun-filled decade of New Libor! Things can only get bitter!

[interestrateripoff]

Can you borrow at LIBOR to fund fixed rate mortgages of duration in excess of 1 day. If not, then why is the comparison being made?

But hasn't that been what the banks have been doing during the boom, borrowing short and lending long which is why they ended up sh1t creek without a paddle and needed the taxpayer to bail them out.

Clearly this plan does have a slight flaw.

[Bloo Loo]

Can you borrow at LIBOR to fund fixed rate mortgages of duration in excess of 1 day. If not, then why is the comparison being made?

because, it is again, an illustration of the difference between the real world and the bankers world.....are you beginning to see Charlotte?

[Joey Buttafueco Jr]

But hasn't that been what the banks have been doing during the boom, borrowing short and lending long which is why they ended up sh1t creek without a paddle and needed the taxpayer to bail them out.

Clearly this plan does have a slight flaw.

Exactly. So I don't see what the fuss is about. I recall that the five year swap rate is around 3.5%, five year fixes around 5% for good deposit. I don't see this as being extortionate.

[Bloo Loo]

Exactly. So I don't see what the fuss is about. I recall that the five year swap rate is around 3.5%, five year fixes around 5% for good deposit. I don't see this as being extortionate.

thats a 42% mark up

[Joey Buttafueco Jr]

thats a 42% mark up

If you take a typical mortgage of ~150k, include the arrangement fees of ~£1000k, the administration, the bad debt provision etc, I would guess they are making around 1/2%. Again, I don't see this as excessive.

[lordofcolchester]

If you take a typical mortgage of ~150k, include the arrangement fees of ~£1000k, the administration, the bad debt provision etc, I would guess they are making around 1/2%. Again, I don't see this as excessive.

That is a hell of an arrangement fee Noel.

[Joey Buttafueco Jr]

That is a hell of an arrangement fee Noel.

Ah yes.

[Georgia O'Keeffe]

That is a hell of an arrangement fee Noel.

but a fee well worth paying to get a foot on the Housing Ladder in the UK given that property is a one way bet there. Its like paying a cool mil for the goose that lays the golden egg. Cheap at twice the price id say

[Bloo Loo]

not so good now a "typical" mortgage is £135,000, down from £139,000 in July IIRC.

[Bloo Loo]

If you take a typical mortgage of ~150k, include the arrangement fees of ~£1000k, the administration, the bad debt provision etc, I would guess they are making around 1/2%. Again, I don't see this as excessive.

oh, so half percent...thats about 15% on cost, year in year out for 25 years.....not bad for one loan.

so you expect 30% of the "profit" to disappear in bad debts....and I thought you were an optimist.

[Joey Buttafueco Jr]

oh, so half percent...thats about 15% on cost, year in year out for 25 years.....not bad for one loan.

so you expect 30% of the "profit" to disappear in bad debts....and I thought you were an optimist.

We would have to do some more digging on admin costs etc.

[MongerOfDoom]

thats a 42% mark up

Only in a world where property only goes up or where everyone pays their loans back. It does not take a huge number of defaults to completely wipe out the "profit".

[jackofalltrades]

Get rid of those BTL c***s by raising I/r to 8%.

Government buys the repos and sets fair rents- which should be no more than 1/6 th of the average income This is a fact.if its more then the tenant will always be in debt.

All the other scumbag rip off landlords will have to follow. C***S!.

All those people who were then suckered into a mortgage way beyond their means could then rent cheaply and save with a decent rate of interest.

Its only those smarmy C***s in the City and the other parasitical b*******s who inhabit the housing market who benefit from our debt. F**K the lot of them.

[Joey Buttafueco Jr]

Get rid of those BTL c***s by raising I/r to 8%.

Government buys the repos and sets fair rents- which should be no more than 1/6 th of the average income This is a fact.if its more then the tenant will always be in debt.

All the other scumbag rip off landlords will have to follow. C***S!.

All those people who were then suckered into a mortgage way beyond their means could then rent cheaply and save with a decent rate of interest.

Its only those smarmy C***s in the City and the other parasitical b*******s who inhabit the housing market who benefit from our debt. F**K the lot of them.

Is your first name Danny?

[Laughing Gnome]

Get rid of those BTL c***s by raising I/r to 8%.

Government buys the repos and sets fair rents- which should be no more than 1/6 th of the average income This is a fact.if its more then the tenant will always be in debt.

All the other scumbag rip off landlords will have to follow. C***S!.

All those people who were then suckered into a mortgage way beyond their means could then rent cheaply and save with a decent rate of interest.

Its only those smarmy C***s in the City and the other parasitical b*******s who inhabit the housing market who benefit from our debt. F**K the lot of them.

Totally agree.

Enabling councils to compete on a level playing field with private landlords would have nipped HPI in the bud back in 1997.

Landlords come in for a lot of flack on this forum, but only the not very wealthy, upstart sort. The rest are worshipped.

[Uriah Heap]

Get rid of those BTL c***s by raising I/r to 8%.

Government buys the repos and sets fair rents- which should be no more than 1/6 th of the average income This is a fact.if its more then the tenant will always be in debt.

All the other scumbag rip off landlords will have to follow. C***S!.

All those people who were then suckered into a mortgage way beyond their means could then rent cheaply and save with a decent rate of interest.

Its only those smarmy C***s in the City and the other parasitical b*******s who inhabit the housing market who benefit from our debt. F**K the lot of them.

A lot of anger there. And a lot of us on this forum share it. I wonder how widespread it is elsewhere?

[Bloo Loo]

Only in a world where property only goes up or where everyone pays their loans back. It does not take a huge number of defaults to completely wipe out the "profit".

its a 42% mark up whatever world you inhabit.

I hear that in the US 5% is the max defaults they could stand....its already higher....here, we dont have that problem as many defaulters are paid for by the tax payer...for now.

[huw]

Interesting thing about LIBOR

"The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time."

(ISTR this came out in a documentary a while back, too)

Meaningless unless tested by actual borrowing IMO, or verified in some other way. A better test would be the price at which it's prepared to lend funds to a particular counterparty.

[interestrateripoff]

its a 42% mark up whatever world you inhabit.

I hear that in the US 5% is the max defaults they could stand....its already higher....here, we dont have that problem as many defaulters are paid for by the tax payer...for now.

Silly Bloo your also forgetting the UK didn't do subprime.