Tuesday, November 4, 2008

Don’t expect any BoE interest rate cuts to be passed on….

Mortgage firms feel pinch as funds dry up

Of the various factors which determine mortgage pricing the starting point is the cost of funds to the lender. Other factors include the availability of funds (which has been a problem all year), how competitive the lender wants to be, competitor pricing and how risky the lender considers a particular type of mortgage.

Posted by whostolemyendowment @ 09:18 PM (709 views)
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4 thoughts on “Don’t expect any BoE interest rate cuts to be passed on….

  • didn’t realise just how relevant the ‘education’ post below would be

    clearly no-one is /was educationally prepared for the sheer scale, depth, breadth, extent of the application of tiny amost non existant reserves the banking industry would derive from the fundamentals of fractional reserve banking.

    It seems to most, the effects are beyond comprehension.

    I must admit, I’ve know it was bad for a few years but I had no idea just how insane it had really become.

    Bremner, Bird and Fortune may help.

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  • known

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  • mark wadsworth says:

    Right. This is just arguments for debt-for-equity-swaps.

    Of the various factors which determine mortgage pricing the starting point is the cost of funds to the lender

    With more shares (that expect, but are not entitled to a return) and less ‘debt’, the average cost of capital to the bank goes down (the weighted average cost stays the same as prices of bonds and shares will adjust up or down to match).

    Other factors include the availability of funds (which has been a problem all year)

    Yup. Mortgage lending has dried up because people don’t want to borrow – HURRAY – but if lending to otherwise viable businesses that are financed by bank loans dries up, we are in a bit of a mess. But lending to businesses has dried up because banks have the bondholders etc snapping at their heels for repayment in X months or years. So just cancel some of those bonds and issue them with new shares of approx. the same market value. There’s no economic loss to bond- or shareholders (subject to a bit of cunning maths and so on to spread unrealised losses fairly), but businesses can heave a sigh of relief, fewer people lose their jobs etc. etc.

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  • planning4acrash says:

    Malct, those who study Austrian economics saw this coming since Bretton Woods!!

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