Friday, November 7, 2008

Banks and BSs have now capitulated, allegedly

Lenders vow to pass on interest rate cut

Further to my earlier post "What's in it for Lloyds TSB?", the banks and BSs have staged a tactical retreat and cut SVRs. But no doubt they will make it more difficult for people to qualify for SVR, via lower maximum LTV or income-multiples. We'll see.

Posted by mark wadsworth @ 03:02 PM (2810 views)
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36 thoughts on “Banks and BSs have now capitulated, allegedly

  • Hmm when is the next general election? We got to vote these jokers out who keep meddling to try cover the mess they made.

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  • I have a terrible feeling that the sheeple, the same who voted the headteacher of GB’s old school into Westminster in the Glenrothes By-election, and their ilk, will forget the past and give this unelected buffoon another term. I agree Nulab need to go, but if he can make them feel good again about debt and spending, then he will, and I hate to write this, get re-elected. This is, after all what he is doing all this posturing for.

    Agreed titaniccaptain the hand of GB is everywhere and it stinks. We all, desperately want the HPC to bring housing down to truly affordable levels, but I can hear all those vendors out there battening down their hatches even tighter, after this rate cut. they will be expecting buyers to now achieve their asking prices, because they will be able to borrow more cheaply. I only hope that when history is written it gives a true portrayal of the betrayal of the people of the UK by GB and TB, based on nothing more than achieving personal capitalist, not even socialist goals, and all this from Socialists.

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  • Listening to radio 2 today, i have allready heard several people on phone ins say that now is a good time to buy property.
    It looks like Brown and AD are going to achieve the unthinkable.(and cameron is also agreeing with them)
    But what about the Fundementals folks.
    Coming soon in 2009
    record levels of unemployment
    record levels of debt
    record levels of insolvencies
    and if the pounds continues to collapse, imported inflation.

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  • Most lenders stopped accepting new business on SVR a few months ago.

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  • Guy’s please dont get sucked in by this stuff – when you are at the coal-face things are much different and I can tell you first hand it just aint happening

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  • Will this stop HPC? No, it won’t. because

    1. Even if the full reduction is passed to borrowers, the average saving is only about £100 per month. If every month you are on a knife edge for a mere £100, then you must have other more serious financial problems. It like being shot 7 times in your head, but only one hole is filled.
    2. 1st time buyers still won’t come back. OK, if they return now they would save £100 per month, but why the hxll would they do that when the price is falling £1000 a week?
    3. Which ever bank provides the cheapest deal will be absolutely flooded with binge borrowing addicts – the kind of people who are most likely to default. This is nothing short of committing suicide for the banks. With the main source of money dried up, the banks can only do this for short term.

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  • IMF now sees global recession in 2009
    U.S., EU economies likely to contract, Canada only major economy to grow
    In its updated forecast, the IMF said world output would fall to 2.2% growth in 2009, down from 3.7% pegged for 2008.
    The projection is below the IMF’s prior forecast, released just a month ago, which had called for 3.0% growth.
    But at a press conference, IMF chief economist Olivier Blanchard refused to use the term “recession.”
    “Choosing a number is not very useful. Growth is very low,” he said

    http://www.marketwatch.com/news/story/IMF-warns-global-recession-2009/story.aspx?guid={273B5323-53E7-455F-A66A-8B1A66F944E0}

    from comments :- I thought we were already in the recession and it started from late of 2007!!! May be they meant “Depression”!?!?

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  • charlie brooker says:

    Surely the reason that the banks were reluctant to pass on the cuts was to use the margin to help rebuild their balance sheets?

    If Brown’s clunking fists have forced them to pass on the cut, has he offered them further funding in lieu, courtesy of the tax payer?

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  • its the main story on bbc news
    http://news.bbc.co.uk/1/hi/business/7716086.stm

    Gordo says
    “Yesterday, we saw decisive action on interest rates from the Bank of England and the European Central Bank, and I welcome the fact that a number of British banks have now decided to pass on the interest rate cut to customers, to families and to businesses,” he said.

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  • Pass on the cut when an estimated 10% of borrowers are on the lenders standard variable rate (big deal) – one things for sure I’ve forgoten more than Gordon know’s in relation to the mortgage market.

    You still dont have a solution to the problem of borrowers coming off fixed rates and looking for a new deal EG Halifax customers now likely go to the SVR because their other rates are relatively poor. 5% SVR looks reasonable compared to BBR +1.94% (4.94%)and a £1249 fee!

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  • “Banks and BSs have now capitulated, allegedly”

    False flag op to make it look as though the dog is wagging the tail. In reality, however, it is the other way round.

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  • Given that cheap credit allowed the debt build up that has got us into this trouble, and nearly bankrupt the banks but for Govt/sovereign bailout, will pushing the banks to lend as freely as before what is mainly Govt money bankrupt the Govt? I can’t believe that will happen so is all this just posturing for the masses? It’s all rather strange. Robert Peston said this morning that the bankers will be feeling confused.

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  • In the other parts of the economy which are already in dire trouble, such as house building, a rate cut is unlikely to make much difference because the problems are too deep-set. If people are not going to go shopping for a winter coat, how much less likely is it that a cut of even 1.5 per cent in interest rates would unleash a sudden demand for new homes to get the house-building industry off its knees?

    Rate cuts have the power to make us feel better even if we know it’s a fake — a bit like going to the theatre — so what he delivers and the style in which it is done can matter a lot. But here again there may be a lingering doubt. Having slashed rates by this almost unprecedented 1.5 per cent it could backfire.

    In their present mood, people are likely to take it as confirmation that we are going down the plughole and get even more depressed. And if that happened next month or the month after, there could be a demand for an encore. Let us hope the Governor and his team have enough energy left to deliver one.

    Anthony Hilton thisislondon

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  • Jack C

    I don’t know which part of the coal face you work on. But from that coal face do you know what fall the lenders are currently factoring in.

    I assume this fall would be slightly less than the level of deposit being asked for (to give at least a small margin on repo).

    As I understand it stress tests are carried out to a 50% fall with 20 year recovery (don’t know if the systems survive this mind you).

    And to a degree don’t the banks (or people in them) have the attitude of oh well if it goes wrong the government will have to give us some more money.

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  • str 2007 – I’ll be back on here in a few hours time to reply to your ?

    Jack

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  • Eternal Sceptic says:

    Collapsing economies, people and businesses going bankrupt, raw materials running out, oil reserves declining just about everywhere. A house price collapse is unfortunately the least of our collective problems. Politicians have a very limited time to put humpty dumpdy back together again. If they do not succeed, life is fixing to et very untidy for everyone, even the pigs will find an empty trough.

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  • “The powers of financial capital had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.

    This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.

    Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”

    Caroll Quigley, Tragedy and Hope, 1966

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  • mark wadsworth says:

    @ Jack C, 15.

    You have hit the nail on the head. The nominal SVR is not so important. What is important is LTV and income-multiples. Banks can easily exclude the riskier borrower from SVR by saying LTV 50% and income multiple 2, everybody else is on sub-prime rate of 7%, or whatever. Or 7% fixed with 3% arrangement fee and compulsory repayment insurance.

    So the dog will end up wagging the tail again, to borrow Harold’s expression.

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  • japan

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  • Calm down people! Whatever GB says to the banks, they are not going to be lending 100% mortgages (more like 80% LTV) let alone the 125% that fuelled the boom years. Nor are they going to lend 5-6+ times income either. Whatever the headline rates come down to, they will find some way of ensuring the money lent only goes to those who can afford it. They will be able to point to low cost products ‘available’ but then weed out 50% of applicants.

    Also remember housing is a lagging indicator – arrears/repossessions will continue to rise after the economy has stopped declining (which of course it hasn’t – it’s got another 3-4 quarters of that yet). All the indicators show that economic activity is falling off a cliff. We are too quick in this internet age to call the end of the crisis. This whole thing is only just over a year old. The slowdown in the early 90s took 2-3 years to bottom out. The bottom of the Depression was 1933, 4 years after the 1929 crash. Whatever GB & AD do, this this has its own momentum now and will not be stopped. Do not get suckered in to some sort of dead cat bounce, either in the stock market, or (heaven forbid) the housing market. It will get a lot worse before it gets any better. The figures for everything (company profits, unemployment, govt borrowing, economic output etc etc) over the next year will be uniformly awful.

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  • goweresque
    Do you see the ftse cureently in a dead cat bounce and if so when and how low is your prediction?

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  • str 2007 – back to answer your original question – by working at the coal-face I’m referring to brokers dealing day in day out face to face arranging mortgages (or more accurately trying to arrange mortgages in the current climate) on behalf of clients (I’m not a pure mortgage broker but I am fully qualified/licensed in this area) – Mark W has already stepped in to give an accurate reply however I will expand upon this a little more. The lenders are starting to reduce the rates in response to Government demands however how much of this will filter through to customers is debatable because the lenders need to make as much margin as possible to help their re-capitalisation programme. They will thus use a whole host of other tactics to avoid passing on the rate cut including the following

    Lower loan to values (LTV’s)
    Lower Salary multiples
    Stricter valuation criteria ie if the valuer reports items that require remedial work the lender is now insisting it be remedied before they will advance any monies (retentions)
    Down valuations are much more likely
    Income that was previously acceptable is now excluded eg Working/Child Tax credits, overtime/bonus

    I could produce a list which would ultimately run of the page – one of my close friends has 40 (Forty) re-mortgages (typically 2 year deal coming to an end) on his desk as I type and he cant place even one of the 40 because none of the fit the new lending criteria – so the drop in rates is IMO at this juncture irrelevant and backs other contributors suggestions that the tail wags the dog

    I’ll post an opinion on the stress testing angle if you want me to? but it’s been a long week and I’m now off for a beer.

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  • agreed

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  • Jack c @ 9.38
    very interesting. Thanks for the info “from the coalface”
    Its always re assuring to hear feedback like yours.It backs up my guess work and gut feeling.
    enjoy your beer.

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  • Interesting thread with some very enlightening comments. I am in agreement with jack (27) and goweresque (25). The only comment I would add is that the Government are aware of all this, what they are doing/saying at the moment is merely political posturing – an attempt to deflect criticism from themselves and onto the banks.

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  • Thanks for the positive feedback guy’s – can I seriously request (if that’s the correct phrase, but the beer’s now kicking in) that you do not get sucked in by the hype – I attended a seminar today run by a highly respected fund management company which provided an overview of the UK/World economy and the markets in general and the stance they are taking makes the bearish sentiment posted on this site look positively bullish !! – we are truly in uncharted waters – I will try and post up the seminar notes/details over the weekend – bit of a heavy read but well woth taking the time to go through it if you want to see the genuine bigger picture on where we have been, where we are now and where we are potentially headed.

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  • People please do remember something Vey and i mean Very important , the banks have been partially bailed out, i say partially as from what i read there is more coming.

    As with any bail out the sums involved ( and i hear this will get to a quillion Dollars – thats 1000 Billion Dollars ) is to cover what has been lost or owed.

    What about the business of making money and not getting back to losing it any more <<<<<<< THINK ABOUT IT, THIS IS THE MAMMOTH POINT......... things will never and can never be as they were. Reading here would you want to go borrowing money - Bloody sure i dont and wont

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  • Well thanks for that mark w and jack c

    The BBC on the news at 10 would have us believe 50% of current mortgage holders will be benefiting from the 1.5% reduction in interest rates.

    Concur it’s good to be on here with likeminded and be able to get nearer the truth.

    Not knowing exactly where you sit in on the coal face it’s difficult to know which questions to ask that you’ll be able to answer but here goes with a couple.

    1/ The stress testing question I asked earlier I think will lead to the conclusion as to where LTV’s will go and these are incredibly critical (the example I used the other day was a £15k deposit at 95% LTV creating a £300k budget pay back funds allowing, but drop that LTV to 75% and the budget drops to £60k) small difference in LTV% = huge difference in Budget. I’m sure you’re well aware of this but I am making it clear to any other readers. So yes would be interested to know what the lenders think on the inside as against their predictions of another 10% to the bottom nonsense they pump out to the general public.

    2/ Do LTV’s override lending multiples or vice versa ? This question I guess will link with above. ie if the deposit is greater than the anticipated fall then the multiple over rides and vice versa, but just to clarify ?

    3/ You mention in your post ”Income that was previously acceptable is now excluded eg Working/Child Tax credits, overtime/bonus”. Are Self Cert mortgages still available given LTV’s of less than 75% ? and how accepting are lenders of the various ways of manipulating income to ‘legitimately’ keep the tax bill down ? I ask this question for a good reason, there are alot of self employed/ small company owners out there who will continue to make reasonable money but may choose to keep money in businesses and pay themselves the bare minimum of a take home wage. It could easily appear on paper that these people earn perhaps as a couple only £10-15k per annum to maximise the various benefits available but should the need arise be able to realise significantly more money than that. Are these people able to borrow easily or are lenders now looking at what they actually pay themselves regardless of whether or not they are being prudent with managing their money ? This section of people I believe are significant and it’s one of the variables in how things will play out.

    4/ The BTL area and where it is going. The 1st question is on margin calls as alot of BTLers must be close to zero equity now if not in negative equity (given the typical type of property in this sector). So is there talk of margin calls going out soon ? and if not how are the lenders proposing to deal with this ? The second part of the question was how lenders are dealing with new business and where are LTV’s and lending criteria currently going in this area of the market.

    5/ Lastly I assume lenders do actually need fresh business with which to rebuild their balance sheets (as opposed to making more profit from the mortgages already out there) ?

    Sorry if that’s a long list but the answers to these from some one ‘on the inside’ is like the Holy Grail to us here trying to accurately calculate ahead with predictions/gut feelings as to how low this is likely to go.

    Hope you enjoyed your beer

    Many Thanks.

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  • str 2007 – I have just watched the BBC news and they are certainly not at the coal-face !!. You have have raised 5 main points (plus sub questions) and I will respond openly and honestly but I’ll leave it until 2morrow.

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  • No problem Jack, I wasn’t expecting you back from the pub so soon, I’ll look forward to reading it tomorrow.

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  • So the fact that these cuts will only be passed on to existing borrows is good news.

    The fact that banks will raise lending criteria for new borrows is good news.

    Basically, anything that makes it harder for people to buy a first home is good news because it will bring house prices down.

    And why do we want house prices to come down ? Can any of you remember?

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  • Tenyearstogetmymoneyback says:

    Thanks to Jack c this is the most interesting thread I have rad here for a while.

    A question for you.

    When I last looked at Mortgages the SVR was the rate that people ended up paying when their special deal came to an end.
    Sometimes (e.g. at the end of a fixed rate) people were locked to the SVR for a few years.

    Are you saying that people are now coming to the end of fixed rates and being told they can’t go onto the SVR?

    :- Duncan

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  • str 2007 – my thoughts as follows

    1) Stress Testing – prior to going into public ownership the FSA ran a stress test (2007) at N Rock using a 30% drop in house prices. If someone is now looking to secure a decent mortgage deal it really needs to be under 75% LTV however some of the main lenders will provide their best terms at 60% LTV or below. I would conclude from this that most lenders/economists etc are thus expecting a 30-35% drop peak to trough (no adjustment for inflation and no allowance for overshoot on way down)

    2) LTV will take priority over Salary multiple in terms of the mortgage deal – the lower the LTV the lower the risk to the lender and hence better rates for borrowers with bigger deposits – the 2 are however interlinked ie no good having a big deposit with a part time job !

    3) Lenders have tightened up on verification of income and indeed what they will now accept is more restricted than before. Self Cert is still available for self employed however it is now from a very small number of lenders – true self cert is difficult to come by and often confused with fast track mortgages where the lender MAY ask for evidence of earnings but often doesnt bother. I personally hate self cert because I believe everyone should be able to provide proof of earnings as agreed with HMRC. It is possible for those who are self employed (sole trader) or operating within LLP’s or Ltd co’s to arrange their affairs tax effeciently but the down side is that you then restrict your borrowing capacity – hence they attempt to get around this by use of a self cert loan – most people conveniently forget that it is an offence to declare false info on a mortgage application and this includes inflating income – a further problem in IMO is that if some ends up with an Inland Revenue investigation the first thing they will look at is the relationship between the size if the house/mortgage and declared earnings eg how does the taxi driver on £8k per annum fund a £175K mortgage?

    4) BTL – some BTL “investors” have been in the market a long time and are experienced enough and have sufficient equity to ride out the storm – those that entered the market in say the last 3 years and particularly those that bought appartments typically Leeds, Liverpool, Newcastle, Birmingham, Manchester (they all look the same) will be in negative equity as prices have fallen back dramatically in this sector. In simple terms so long as the borrower keeps up the repayments the lender is happy end of story. In terms of new lending in the BTL sector it is now VERY restricted and even re-broking existing deals is almost impossible because of downvaluing thus the borrower cant meet new tighter LTV requirements. I know of 2 mortgage brokers who have gone out of business because of this in the last week. In short the BTL market is history – it will still exist in the future but on a vastly reduced scale available only to those with large deposits and a sound business plan.

    5) Lenders do need fresh businees but the focus has switched from volume/market share to quality and with the Rock out of the game those that remain are very choosy about what they take onto their books

    Hope this helps

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  • Thanks Jack C

    Self fulfilling prophecy then.

    Nailing things back to 75% LTV will in itself create a far greater fall than 25% as per my example above.

    Even a £50k deposit then will only get someone a £150k mortgage ( providing they earn enough).

    In theory this should take prices back to 2002 maybe even 2001 levels and who knows maybe an overshoot to the downside aswell if things get really bad. Or in percentage terms 40-50% off. Was 42% the HPC averaged opinion ?

    If it does then even the experienced BTLers will be in serious difficulties. IE caught on old SVR’s after their teaser rate has finished and unable to get the new lower interest deals through lack of equity.

    In some ways it seems so obvious that is the level of fall due, it makes you wonder why 75% LTV’s are being offered. Nothing like looking on the brightside I guess when you’ve got tax payers money to fall back on.

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