Thursday, June 25, 2009

But I thought base rates were only 0.50% ?

Mortgages: 'Fixed rates could reach 6pc within weeks'

Lenders are now charging an average of 5.04pc to home owners who want to fix their repayments for two years, up from 4.92pc on Monday and 4.74pc at the beginning of last week. Banks are saying they don't want to be overly competitive and they are being forced to put up their rates, and this is having a spiral effect. If it carries on like this, within a couple of weeks we could see an average rate of 6pc.

Posted by drewster @ 02:08 AM (1375 views)
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10 thoughts on “But I thought base rates were only 0.50% ?

  • brickormortis says:

    Does this mean I will get more than 0.5% on my savings account again????

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  • Banks already have fixed rates in excess of 6% for some with little or no equity … the VTL flat brigade are in for a bit of a shock come remortgage time ..

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  • it_is_going_with_a_bang says:

    Erm no…. It means the banks make more money, pat themselves on the back and pay themselves higher bonuses.

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  • “It means the banks make more money.” Yes and No. Yes, because banks do make more money per each deal. No, because banks can no longer securitise the debt and sell it to investors, so the total volume will be and has been significantly reduced.

    This was inevitable because the banks have to live with the risk now rather than passing it on. And very soon, they will realise that investing in property is less profitable than lending money to good companies. If you believe the conspiracists, then what happen next is that the banks will dump risk mortgages on taxpayers (with government aids) and move on to some more profitable.

    Ironically, that may well be what is necessary to bring the property mania to its end.

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  • george monsoon says:

    Peter, are you saying banks are looking to exit the mortgage market altogether..?

    Wow.. so how would people buy property? this doesn’t sound plausible?

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  • need-a-crash says:

    This is great news. Although it is profiteering by the banks at least they are doing us a favour by pricing money correctly. Shame our government (sorry independent BoE!) can’t do likewise.

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  • Double figures then next year.

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  • Double digit interest rates seem unlikely to me. The government will certainly need to attract money from abroad but since the sums involved are so huge it won’t be able to service the interest at double digit rates. I think it is more likely that we will see interest rates at 7%ish in order to attract some investment, with massive spending cuts and some tax rises to make up the shortfall. In short, the spoilt public sector will take the brunt of it and the tax payer will receive few services for a lot more money.

    At a 7% interest rate most people would see their mortgage payments rise to little more than 1 or 2% above their 2006 rates. Huge interest rates would cause a great deal of harm to individuals, which a newly elected government won’t necessarily care about, but it will care about the effect that increase in defaults will have on banks. No government will want to be back in the situation labour engineered in the last decade.

    If I could choose the solution I would do two fairly simple things:

    – I would change the law to make those who borrowed money liable to repay it. If they declare bankruptcy, then the creditor would only be able to accrue interest on the outstanding loan amount at BoE rates from the time the loan was taken out. Additional charges would not be permitted after declaring bankruptcy and previous charges deducted from the loan amount.

    – I would allow those who wish to borrow for a mortgage to borrow as much as they please, but they must provide a 15%+ deposit. This would ensure that if the bank repossesses the house that they could cover the outstanding loan amount through the homes sale.

    – Buy to let has inflated prices to unsustainable levels and has shown that those who speculate in property create asset bubbles through their irrational behaviour. For this reason, sale of a second home would be taxed at 40% capital gains tax.

    – Planning permission for conversions of homes into flats would be automatically denied. There is a massive oversupply of flats in every part of the UK, but a huge under supply of family housing.

    – There would be no vat or sales tax on the construction of new homes.

    – Purchasers of land suitable for building in towns and cities would be fined after 2 years if the land hasn’t been developed and after 4 years if the development isn’t complete.

    That should sort it.

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  • tenyearstogetmymoneyback says:

    George Monsoon.

    People would have to go to a old fashioned building society and probably have an interview with the manager there.
    When did banks start giving out mortgages. Back in the 1980s it wasn’t very common.

    Graham said

    Purchasers of land suitable for building in towns and cities would be fined after 2 years if the land hasn’t been developed.

    I have read that in Spain planning permission only lasts six months unless work has been started on the building.
    This explains why there are planning permission problems with lots of Holiday homes etc

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