Tracker Mortgages "de-Linking" From The Base Rate

[Vagabond]

I remember a story where a women broke her leg on holiday but her holiday insurance wouldn't pay up because she had been drinking

Do you read all the small print before you sign up?

I don't, but then if it turned out I'd missed something by not doing that I'd have to put my big boy pants on and suck it up. Its called taking responsibility for your actions and used to be a rather large part of being an adult.

[Allez_L'OM]

"The banks and building societies do not borrow from the Bank of England, that seems to be an urban myth of the crisis."

I'm surprised by how many people believe this. Does 'lender of last resort' not make it clear enough ?

[lie to bet]

http://www.bankofengland.co.uk/markets/Documents/money/publications/condococt08.pdf

'Over a month as a whole, a bank’s reserves

holdings are remunerated at Bank Rate so long as, on average,

they fall within a range around the reserves target it has

chosen. There is thus a region within which an individual bank

has a choice between varying its reserves position at the Bank

(at Bank Rate) and financing itself in the market. Outside that

region banks may still transact with the Bank, in unlimited

amounts, in the Bank’s standing facilities (for both lending and

deposits) but they do so at less favourable interest rates.'

iirc boE base rate ledning is short term in nature.libor hasn't moved that much.so either MBS is having trouble accessing the interbank market or it's assets are taking a bit of a shellacking

edit to add

'53 The Bank undertakes OMOs at a number of different

maturities. Routinely, once a month it lends for periods of

three, six, nine and twelve months. Once a week it lends or

borrows for a period of one week. And, as described above, on

the final day of every monthly maintenance period the Bank

undertakes a ‘fine-tuning’ OMO lending or borrowing for an

overnight maturity to ensure that the supply of reserves in the

maintenance period as a whole can be brought as close as

possible to the banks’ reserves targets'

[lie to bet]

Sorry, I did not comment in previous post.

Is the problem for Manchester Building Society caused by them not being a bank but a building society?

The building societies have been complains that they do not get the same advantages as banks,and that this is jepodising their position in the mortgage market.

[19 year mortgage 8itch]

Lots of trackers were advertised as a "BoE base rate tracker +x.x% for the term of the mortgage"

I don't imagine there's any small print which can contradict that, and if there is there will be a mis-selling scandal bigger than PPI

I don't think this is a big story

Another base rate tracker who's twitching.

I'm all for let these institutions going bust and letting thier customers find a new deal that's just as generous. Oh wait...

[Vagabond]

Sorry, I did not comment in previous post.

Is the problem for Manchester Building Society caused by them not being a bank but a building society?

The building societies have been complains that they do not get the same advantages as banks,and that this is jepodising their position in the mortgage market.

Yes. I believe they have to borrow against LIBOR and thats why they're being done against the margins. I would guess the banks are following suit because they can rather than through need.

[(Blizzard)]

Surely no-one actually borrows at LIBOR?

[Andy D]

Barclays / Woolwich does not need to invoke any hidden clauses to push up it's tracker rate to whatever it likes.

This is because their trackers are not lnked to the BofE base rate but Barclays Bank Base Rate (BBBR). Years ago I had a Woolwich Offset Tracker and I know this was linked to BBBR (I queried it's relationship to BofE base rate at the time) and this still appears to be the case for their tracker range

http://www.barclays.co.uk/Mortgages/Trackermortgages/P1242557963484

Historically the BBBR has tracked BofE base but this is not guaranteed and Barclays can set this rate to whatever they like.

http://www.barclays.co.uk/Savings/BarclaysBankBaseRate/P1242557964824

The flipside would be that they would have to pay more interest on savings accounts linked to BBBR but a quick Google check suggests that these are no longer available:

http://www.barclays.co.uk/Savings/TrackerSavingsAccount/P1242558332064

Could be interesting times ahead for Barclays / Woolwich tracker mortgage holders if MBS action starts a trend

Yup, that's right Woolwich trackers were/are linked to Barclay's Base Rate.

If they change the Barclay's Base Rate that's fair enough as they've always been open about them being linked to Barclay's Base Rate, so is a lot of small business lending I would imagine.

Many of the trackers were at very low rates too (got one at +0.19%, and another at +0.95%) and we planned on IRs being much higher when we bought. (+0.19% rate mortgage will be paid of in a few years when my divorce settlement finally completes)

One of the interesting questions is when does a 0.5% base rate become the norm rather than the exception, after all Japan's had an ultra low base rate for over ten years?

Andy

[timebandit]

Found this on MSE. Didn't know they could do this. Although it is only a small building society with hardly any borrowers effected if it spreads could be carnage!

http://forums.moneysavingexpert.com/showthread.php?t=3911273

Being reported by FT journo Tanya Powley Please also include BTL.

Manchester Building Society pulls out of interest-only completely for residential mortgages

[PopGun]

Lots of trackers were advertised as a "BoE base rate tracker +x.x% for the term of the mortgage"

I don't imagine there's any small print which can contradict that, and if there is there will be a mis-selling scandal bigger than PPI

I don't think this is a big story

+1

The term 'Tracker' alone would be enough.

Anyway if they're allowed to get away with this, what makes people think a similar stunt won't be pulled with savings/isas?! If you can’t trust these institutions with your mortgage, you most certainly should not trust them with your savings.

My lender can try to pull this one if they want, as I've got plenty of their corporate literature saying my BMR is guaranteed to be no more than 2% above the BOE base rate. They can shove any small print up their collective ar$es.

Edited April 20, 2012 by PopGun

[tomandlu]

Can one confidently say that the banks borrow at the base rate? Is the difference essentially the rate at which they are recapitalising? If so, it's interesting to note that the government don't have much to say about this... all going according to plan, I'd say...

[Bland Unsight]

I`m a debt free saver who paid 350 p.m rent in 1998, and now pays 450 p.m rent (for a much bigger, better located central Edinburgh flat) and am still trying to work out why masses of people became debt serfs to "own" similar flats. It may yet come, but so far I don`t feel like I`ve taken any kind of hit?

+1

Rented in the SE, 2007, £550 pcm. Rent today, £550 pcm. Asking price inflation is not price inflation.

"The banks and building societies do not borrow from the Bank of England, that seems to be an urban myth of the crisis."

I'm surprised by how many people believe this. Does 'lender of last resort' not make it clear enough ?

People think that banks have big piles of bank notes, the analogy is that the view people have of the factory making Mars Bars in Slough is akin to their memories of the film, Charlie and the Chocolate Factory.

the big boys do.

http://www.hm-treasury.gov.uk/d/consult_buildingsoc_capital.pdf

here's an interesting paper that goes someway to explaining the contraction in BS balance sheets.it states that

ZB - great find on the paper, but you're reading it wrong - it's not saying that they are borrowing at LIBOR, it's saying that they are a joke..

This has impacted on the cost of funding for building societies in two ways: firstly it increased the cost of wholesale funding for those societies engaged in wholesale funding markets. Secondly, it led to increased competition for retail deposits, as banks and building societies sought to meet their financing needs by replacing wholesale funding with retail deposits, thereby increasing the cost of retail deposits relative to

Bank Rate. This atmosphere of increased competition for funding is likely to remain as the banking sector exits from the extraordinary support operations introduced during the crisis – including the Special Liquidity and Credit Guarantee Schemes – and as it adjusts funding structures in response to changes in liquidity regulation.

Joe Public might think that UK property is a good investment, but the investors looking to shell out base money have different ideas.

[Bland Unsight]

"The banks and building societies do not borrow from the Bank of England, that seems to be an urban myth of the crisis."

I'm surprised by how many people believe this. Does 'lender of last resort' not make it clear enough ?

Indeed.

Can one confidently say that the banks borrow at the base rate? Is the difference essentially the rate at which they are recapitalising? If so, it's interesting to note that the government don't have much to say about this... all going according to plan, I'd say...

They are not recapitalising. They are just bleeding to death more slowly, or however it is that zombies die...

Look up some numbers.

The Council of Mortgage Lenders have a loan book of about £1,200 billion. Lloyds Group alone have a mortgage book of about £350 billion. The banks' capital ratios are no better that 1:10. Lloyds Group are borrowing £300+ billion from someone.

Now look at the BoE balance sheet - no more than £150 billion of assets last year.

The zombies are guaranteed by the BoE but they are not borrowing from the BoE.

[dances with sheeple]

+1

The term 'Tracker' alone would be enough.

Anyway if they're allowed to get away with this, what makes people think a similar stunt won't be pulled with savings/isas?! If you can't trust these institutions with your mortgage, you most certainly should not trust them with your savings.

My lender can try to pull this one if they want, as I've got plenty of their corporate literature saying my BMR is guaranteed to be no more than 2% above the BOE base rate. They can shove any small print up their collective ar$es.

Savings and ISA`s are your money,and you could keep it in your wife`s underwear if you so choose, whereas a mortgage is the banks money, and they can more or less squeeze you any way they want on it, up to a point anyway? they have been squeezing savers anyway, why not screw over mortgage debtors next?

Edited April 20, 2012 by dances with sheeple

[19 year mortgage 8itch]

Savings and ISA`s are your money,and you could keep it in your wife`s underwear if you so choose, whereas a mortgage is the banks money, and they can more or less squeeze you any way they want on it, up to a point anyway? they have been squeezing savers anyway, why not screw over mortgage debtors next?

If a bank goes bust, the governemnt promises savers they'll get their money, upto £85000, back. If a bank goes bust the government don't promise mortgage holders the same cushty deal does it?

I say these institutions should honour these suicidal tracker deals and when they go bust let the market decide what happens to those homeowners who think a deal is a deal.

[Bland Unsight]

My lender can try to pull this one if they want, as I've got plenty of their corporate literature saying my BMR is guaranteed to be no more than 2% above the BOE base rate. They can shove any small print up their collective ar$es.

Meanwhile, back in the real world, a building society's promises will be honoured as long as they are solvent. What happens to their promises once they are declared insolvent? Given that the Nationwide are being bankrupted by this promise you mention, my question isn't academic. Look and see what happened to people who borrowed from the Bank of Ireland.

Edited April 20, 2012 by ChairmanOfTheBored

[19 year mortgage 8itch]

Meanwhile, back in the real world, a building society's promises will be honoured as long as they are solvent. What happens to their promises once they are declared insolvent? Given that the Nationwide are being bankrupted by this promise you mention, my question isn't academic. Look and see what happened to people who borrowed from the Bank of Ireland.

No, no, as i say above, i think we should make these institutions honour these suicidal deals and see how smug the homeowners feel when the market says no.

[dances with sheeple]

If a bank goes bust, the governemnt promises savers they'll get their money, upto £85000, back. If a bank goes bust the government don't promise mortgage holders the same cushty deal does it?

I say these institutions should honour these suicidal tracker deals and when they go bust let the market decide what happens to those homeowners who think a deal is a deal.

A mortgage debtor doesn`t have any money to lose though? They are in debt, and presumably whoever takes over the debt keeps taking interest payments or pursues the debt within the laws of the country where the person took out the debt?

[19 year mortgage 8itch]

A mortgage debtor doesn`t have any money to lose though? They are in debt, and presumably whoever takes over the debt keeps taking interest payments or pursues the debt within the laws of the country where the person took out the debt?

Sorry I meant they don't get any promises about keeping the same cushty interest rate deal, not getting thier money backlike savers would.

[Bland Unsight]

No, no, as i say above, i think we should make these institutions honour these suicidal deals and see how smug the homeowners feel when the market says no.

SYNW - how can the lenders honour these deal if they are not solvent? They have to cash out savers from time to time. You can fix accounting profits/losses by deceit, but Cash is King. If your business is sh!t enough, you are toast, (Northern Rock). Nobody will lend you the money to enable you to honour your promises with cash. End of.

There are a lot of people holding empty promises from financial institutions. They will all be disappointed one way or another. But lenders that run out of cash get found out, nothing can stop that.

[gf3]

A mortgage debtor doesn`t have any money to lose though? They are in debt, and presumably whoever takes over the debt keeps taking interest payments or pursues the debt within the laws of the country where the person took out the debt?

Yes I think that the mortgage debt would be bought for penny's on the pound and the mortgage just carry on.

[stormymonday_2011]

+1

The term 'Tracker' alone would be enough.

Anyway if they're allowed to get away with this, what makes people think a similar stunt won't be pulled with savings/isas?! If you can’t trust these institutions with your mortgage, you most certainly should not trust them with your savings.

My lender can try to pull this one if they want, as I've got plenty of their corporate literature saying my BMR is guaranteed to be no more than 2% above the BOE base rate. They can shove any small print up their collective ar$es.

The same point was made by one of the posters on the MoneysavingExperts Forum. He was pulling his ISA from the Manchester BS not because he was directly impacted by this change but because if the principle of voiding contracts applied to these mortgages then it might just as easily be used to diddle people out of their savings or return due on equity ISAs. Of course, in the end it will probably come down to a High Court judge deciding whether Manchester BS were justified in claiming current circumstances were 'exceptiona'l. I suspect that if the mortgage deal was entered into post the 2008 banking crisis then the BS may have a bit of a problem winning its case a I doubt that the current screw up of the financial system is much more 'exceptional' than it was back then. Certainly if I was running a financial institution waiting to invoke such as clause I think I would be waiting for a Euro break up before pressing the trigger on this issue

BTW I can find any link to this story on the Google News pages. Can anyone provide details ?

Edited April 20, 2012 by stormymonday_2011

[19 year mortgage 8itch]

SYNW - how can the lenders honour these deal if they are not solvent? They have to cash out savers from time to time. You can fix accounting profits/losses by deceit, but Cash is King. If your business is sh!t enough, you are toast, (Northern Rock). Nobody will lend you the money to enable you to honour your promises with cash. End of.

There are a lot of people holding empty promises from financial institutions. They will all be disappointed one way or another. But lenders that run out of cash get found out, nothing can stop that.

Thats my point, let them go bust and then see what they get.

No bleating about compo then because the evil moneylenders invoked a clause they were too ******witted to read.

[Bland Unsight]

Thats my point, let them go bust and then see what they get.

No bleating about compo then because the evil moneylenders invoked a clause they were too ******witted to read.

Noted - sorry, failing to read between the lines.

Nationwide are killing themselves trying to honours this promise. Probably hoping that rescue in the form of rampant HPI, debt growth and FTB/BTL frenzy is waiting for them if they can just hold on. Good luck with that

[dances with sheeple]

Sorry I meant they don't get any promises about keeping the same cushty interest rate deal, not getting thier money backlike savers would.

I see what you mean, but I suppose in a big enough bust the 85k limit might be tampered with as well? They would just print like f*uck I suppose while The Voice final was on or something