Bank Of England's Fisher - Must Push Lenders To Pass On Lower Costs

[interestrateripoff]

http://uk.reuters.com/article/2013/06/12/uk-britain-boe-fisher-lenders-idUKBRE95B08D20130612

Bank of England policymaker Paul Fisher said on Wednesday that the bank's funding for lending scheme (FLS) was having an effect on the economy but that it must keep pressing lenders to pass on their lower funding costs.

"Individual banks are now awash with liquidity ... and there is no constraint on lending," said Fisher, a member of the British central bank's rate-setting Monetary Policy Committee.

He said that while he did not want to see still-high house prices rising, he did want to see the number of transactions grow in order to boost demand.

"All our policies are geared at trying to get growth into the economy. We're not trying to boost house prices for their own sake," Fisher told a business conference.

So we want growth but house prices not to grow, but only if we have growth?

If they are denying they want house prices to growth clearly they want them to grow to rescue the economy...

[TheCountOfNowhere]

"Must Push Lenders To Pass On Lower Costs"

They already have....savings rates are at an all time low.

Are the low savings rates being counter-productive with respect to getting people spending ?

I took out a 5 years bond at 3% this week because the 1 year and online savings rates are so low. This money is now locked away and wont be spent.

If rates were higher I'd have it in a 1 year bond or a savings account and be more likely to spend it on no manner of over-priced tat.

Edited June 12, 2013 by TheCountOfNowhere

[19 year mortgage 8itch]

"Must Push Lenders To Pass On Lower Costs"

They already have....savings rates are at an all time low.

Are the low savings rates being counter-productive with respect to getting people spending ?

I took out a 5 years bond at 3% this week because the 1 year and online savings rates are so low. This money is now locked away and wont be spent.

If rates were higher I'd have it in a 1 year bond or a savings account and be more likely to spend it on no manner of over-priced tat.

No you wouldn't

[Fully Detached]

"Individual banks are now awash with liquidity

Splendid. So they should be healthy enough to withstand a correction without tipping us all into Armageddon then? Then let's do it.

He said that while he did not want to see still-high house prices rising, he did want to see the number of transactions grow in order to boost demand.

Well there's an easy way to do that, my good man. You stop manipulating the market and let it find its own level. You'll find transaction levels will skyrocket.

FFS, we have a situation where banks are "awash with liquidity" but we can't let house prices fall because that would be bad for the banks. So instead we'll lend more irresponsibly to people who can't afford it, because that will be a really stable way out of this mess.

What a ****.

[billybong]

"All our policies are geared at trying to get growth into the economy. We're not trying to boost house prices for their own sake," Fisher told a business conference.

They must go away from the meetings in amazement at the policies of the people running the BoE.

Little wonder that some bankers are calling some of the policies being adopted moronic.

Edited June 12, 2013 by billybong

[Bloo Loo]

Piles of QE liquidity, but still insolvent.

[billybong]

http://

www.cityam.com/blog/banks-fisher-says-its-not-job-boe-fund-lending

The Bank of England's Paul Fisher, speaking at the Supporting Business for Growth Conference 2013, has said that it isn't really the job of central banks to fund lending. However, these are "exceptional circumstances"

http://

www.govknow.com/event-detail.html?id=373&info=agenda

That must be the conference they're referring to.

Edited June 12, 2013 by billybong

[Bruce Banner]

What that means IRRO is that they want to boost house prices for other reasons than for higher house prices per se.

It makes no difference. Boosted house prices, for whatever reason, will not remain boosted for long. I give it until the end of the decade, tops, before prices are down 50% from peak values.

[Bloo Loo]

What that means IRRO is that they want to boost house prices for other reasons than for higher house prices per se.

they want people to buy sofas.

forgetting that most people cant afford the loans they are offering, even at these low rates, without Government help.

doesnt leave a lot for sofas....which I gather we import anyway.

[Bloo Loo]

Real or nominal? Makes a big difference if for example rent is say 3% of the property value. Also I don't see London falling by 50% but NI has done so already.

Has to be nominal as people are paid in nominal.

[Bruce Banner]

Real or nominal? Makes a big difference if for example rent is say 3% of the property value. Also I don't see London falling by 50% but NI has done so already.

Nominal. And as for London, it's a basket case, typical late stage bubble with those who doubted, piling in for the end game.

[The Knimbies who say No]

Fisher's pushing on a string here, borrowing costs can't really get much lower without confronting the main obstacle of the sum for capital repayment.

A working long-term average in days gone by:

At 8% over a 25 year period, you repay £2.34 for every £1 borrowed.

More recent movements:

At 5% over a 25 year period, you repay £1.77 for every £1 borrowed.

At 4% over a 25 year period, you repay £1.60 for every £1 borrowed.

At 3% over a 25 year period, you repay £1.43 for every £1 borrowed.

At 2% over a 25 year period, you repay £1.27 for every £1 borrowed.

At 1% over a 25 year period, you repay £1.13 for every £1 borrowed.

If we assume that the 8% cost average is a good assumption on which to base affordability for a mythical purchaser buying a house which costs £100k today. How much could they afford to buy the house for if they were offered instead a 25 year fix deal at the rates above?

At 8%, mythical purchaser spends £234k in total on his £100k house over 25 years. The purchase price required to get the same spend at other interest rates is:

5%: £132k

4%: £146k

3%: £163k

2%: £184k

1%: £207k

0%: £234k

So it seems like every 1% knocked from interest rates means a tidy £15-£20k on a prospective buyer's price ceiling, with the jumps getting bigger as zero is approached. Electoral gold.

[winkie]

Must keep on moving.

[easy2012]

http://uk.reuters.com/article/2013/06/12/uk-britain-boe-fisher-lenders-idUKBRE95B08D20130612

"Individual banks are now awash with liquidity ... and there is no constraint on lending," said Fisher, a member of the British central bank's rate-setting Monetary Policy Committee.

I think we have to be very worry as this MPC member clearly has no idea how lending within banking system work. The banks have not been liquidity constraint for a long long long time - they are capital constraint and FCA/Basel have just made them even more capital constrain.

The choices are simple - safe bank + little boom, or reckless bank + big boom & big bust.

[Bruce Banner]

I think we have to be very worry as this MPC member clearly has no idea how lending within banking system work. The banks have not been liquidity constraint for a long long long time - they are capital constraint and FCA/Basel have just made them even more capital constrain.

The choices are simple - safe bank + little boom, or reckless bank + big boom & big bust.

A naive assumption?

[easy2012]

A naive assumption?

Or maybe pretend not to understand ?

[winkie]

If we assume that the 8% cost average is a good assumption on which to base affordability for a mythical purchaser buying a house which costs £100k today. How much could they afford to buy the house for if they were offered instead a 25 year fix deal at the rates above?

At 8%, mythical purchaser spends £234k in total on his £100k house over 25 years. The purchase price required to get the same spend at other interest rates is:

5%: £132k

4%: £146k

3%: £163k

2%: £184k

1%: £207k

0%: £234k

So it seems like every 1% knocked from interest rates means a tidy £15-£20k on a prospective buyer's price ceiling, with the jumps getting bigger as zero is approached. Electoral gold.

Exactly.......lower interest rates have meant a higher overall cost in repaying the debt .......what next we go negative to keep the costs rising and the prices high?......

[19 year mortgage 8itch]

Fisher's pushing on a string here, borrowing costs can't really get much lower without confronting the main obstacle of the sum for capital repayment.

A working long-term average in days gone by:

At 8% over a 25 year period, you repay £2.34 for every £1 borrowed.

More recent movements:

At 5% over a 25 year period, you repay £1.77 for every £1 borrowed.

At 4% over a 25 year period, you repay £1.60 for every £1 borrowed.

At 3% over a 25 year period, you repay £1.43 for every £1 borrowed.

At 2% over a 25 year period, you repay £1.27 for every £1 borrowed.

At 1% over a 25 year period, you repay £1.13 for every £1 borrowed.

If we assume that the 8% cost average is a good assumption on which to base affordability for a mythical purchaser buying a house which costs £100k today. How much could they afford to buy the house for if they were offered instead a 25 year fix deal at the rates above?

At 8%, mythical purchaser spends £234k in total on his £100k house over 25 years. The purchase price required to get the same spend at other interest rates is:

5%: £132k

4%: £146k

3%: £163k

2%: £184k

1%: £207k

0%: £234k

So it seems like every 1% knocked from interest rates means a tidy £15-£20k on a prospective buyer's price ceiling, with the jumps getting bigger as zero is approached. Electoral gold.

I tried to explain this to an eager help to buyer who thinks stage 2 will be an equity loan.

I said it won't help you by lowering mortgage costs, it'll just increase buyer competition to increase nominal prices for the same borrowing nominal monthly costs.

Fell on deaf ears.

[The Knimbies who say No]

I tried to explain this to an eager help to buyer who thinks stage 2 will be an equity loan.

I said it won't help you by lowering mortgage costs, it'll just increase buyer competition to increase nominal prices for the same borrowing nominal monthly costs.

Fell on deaf ears.

You'll have to keep at 'em until Xmas.

[The Knimbies who say No]

Thanks for this. Interesting. So if Carney can get mortgage rates down to 1% from say 3% now the property bubble has another 27% to be blown up ... from 163 to 207 and property will still be affordable. This will increase imputed rent by 27% and as imputed rent is 8% of GDP (IIRC) then there is 2% GDP growth ... and there is also JOY FOR HOME OWNERS.

The thing I find most interesting is that based on wages and historic multiples, prices should be about £100k, maybe £90k in fact. So our mythical purchaser I mentioned above is already in a UK price environment (average 160k) which needs sub 3% loans available to most participants. High-LTV lending is a fair bit away from these levels (yet?).