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Mortgage Lending

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I have been puzzled for some time as to why banks get involved in mortgage lending. The mortgage rates they charge are around 5%. They must pay around 2-3% to obtain the funds. I am assuming much of this has been obtained from Japan where rates have been nearly zero, and I assume they have had to put in place a hedge to protect them from currency movements. Then they have to administer the loans and in due course take their share of losses.

In the past there was cross selling of financial products but this has now fallen by the wayside.

I would have thought investing in say Gilts could have better returns

Please can you enlighten me?

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this is one reason why the credit tighening is coming. a lot of banks have been borrowing from the us at low rates and making small profit. according to the telegraph the other day the make about 0.2 pct on lending. but when you are lending 15 billion a month extra you can see how it adds up.

also what people dont know is that for every pound you deposit in the bank they can lend several times that amount. especially on secured loans, ie houses. so you deposit 100,000 and they give you 4.5 pct, they can lend 300,000 and charge 4.5 pct and you see a good profit. thats essentially how they do it.

but as not enough of us deposit money they borrow from overseas and that is going to stop as the money from the us and japan is drying up. so even if rates dont go up here, the money supply will stop and getting credit will be harder.

this is something people on this site miss. when houses fall in value it will be harder to get a mortgage and so you may not be able to buy when the prices come down, because no one will lend you the money.

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  • 301 Brexit, House prices and Summer 2020

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