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The Paradoxes Of Higher/lower Svr's And Tax Revenues

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I've been wondering about the announcement over the recent days that the likes of Lloyds and Nationwide are increasing there SVR's due to smaller profits being made.

This just highlights the catch 22.

Homeowners need lower SVR to stand any chance of staying in the game and avoiding bankruptcy.

If they have lower SVR's banks make less money, this will affect bonus payouts to the very talented bankers. The govt will have lower tax revenues due to smaller profits and smaller bonuses. This in turn will effect the share price as future profit expectations will be lower meaning the banks are over-valued.

Now if the banks increase the SVR to improve profitability, this sucks money out of the real economy, meaning smaller profits for other businesses. Which could result in more job losses meaning more people can't keep up with the mortgage payments resulting in losses for the banks lowering profitability. Higher SVR's may also trigger defaults on those overly stretched, meaning more losses and lower tax revenues, lower bonuses etc...

We are in the ultimate catch 22, there is no exit strategy we either have a painful deleveraging process or total collapse.

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I've been wondering about the announcement over the recent days that the likes of Lloyds and Nationwide are increasing there SVR's due to smaller profits being made.

This just highlights the catch 22.

Homeowners need lower SVR to stand any chance of staying in the game and avoiding bankruptcy.

If they have lower SVR's banks make less money, this will affect bonus payouts to the very talented bankers. The govt will have lower tax revenues due to smaller profits and smaller bonuses. This in turn will effect the share price as future profit expectations will be lower meaning the banks are over-valued.

Now if the banks increase the SVR to improve profitability, this sucks money out of the real economy, meaning smaller profits for other businesses. Which could result in more job losses meaning more people can't keep up with the mortgage payments resulting in losses for the banks lowering profitability. Higher SVR's may also trigger defaults on those overly stretched, meaning more losses and lower tax revenues, lower bonuses etc...

We are in the ultimate catch 22, there is no exit strategy we either have a painful deleveraging process or total collapse.

Dead right.

I suppose a mitigating factor is that, one a repo has occured, an opportunity for new lending on more attractive terms(for the lender) may present itself, depending on the circumstances of the new owner.

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I've been wondering about the announcement over the recent days that the likes of Lloyds and Nationwide are increasing there SVR's due to smaller profits being made.

This just highlights the catch 22.

Homeowners need lower SVR to stand any chance of staying in the game and avoiding bankruptcy.

If they have lower SVR's banks make less money, this will affect bonus payouts to the very talented bankers. The govt will have lower tax revenues due to smaller profits and smaller bonuses. This in turn will effect the share price as future profit expectations will be lower meaning the banks are over-valued.

Now if the banks increase the SVR to improve profitability, this sucks money out of the real economy, meaning smaller profits for other businesses. Which could result in more job losses meaning more people can't keep up with the mortgage payments resulting in losses for the banks lowering profitability. Higher SVR's may also trigger defaults on those overly stretched, meaning more losses and lower tax revenues, lower bonuses etc...

We are in the ultimate catch 22, there is no exit strategy we either have a painful deleveraging process or total collapse.

Firstly; Many people will cope with higher SVRs. It's not like everybody with a mortgage who is on SVR is clinging on by their fingernails and will go under should base rates climb above 0.5%.

Secondly; In the cases where people can't make the payments the bank will repossess and then sell. Then they'll go after the borrower for the difference. The eventual write-down is likely to be a small proportion of the overall loan.

Thirdly; The sale at a sensible price creates the opportunity (for the banking system) to make another loan but this time to someone who is likely to be able to repay it.

Will it be painful? Sure - but how on earth was the fallout from a decade of credit boom ever not going to be painful???

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Will it be painful? Sure - but how on earth was the fallout from a decade of credit boom ever not going to be painful???

We own too many mortgages for them to let house prices sink, but neither is there any money left to keep them propped up.

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  • 220 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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