Bank Base Rate down by 1.5 %!
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Nice - we have 1.5 years left on our tracker this plus the previous rate drop should save us about £250 per month!
Not strictly true. SOme banks, and the ones which are doing better and are more stable in recent months, do have more savings than they loan out in mortgages but that is the exception rather than the norm.
The rest borrow money on the market at LIBOR rates to lend on the mortgages and loan and just apply a margin. SOme banks have a very small ratio of our money to what they loan out and hence the likes of Bradford & Bingley, Northern Rock, HBOS have been hit hard when the money markets dried up.
Thats why a base rate drop like today means very little. I am just negotiating some new company borrowing. All banks have done is alterered their margins for example.
I can have base rate (was 4.5%) plus a 3.1% margin (total 7.6%) or LIBOR (was 5.98%) plus 1.4% margin (total 7.38%)
6 months ago when base rate and LIBOR were about the same, you could have either loan at the rate plus a 1% margin.
So the problem is, until LIBOR rates drop don't expect loans to come down much unless you are on a tracker.
And if LIBOR rates drop then savings accounts interest rates will drop as well.
Why pay you 6% for your money if you can borrow from another source at 5%?
Soldato
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Yea I'd heard of this so I just dug out my mortgage offer and it has no mention or in any of the small print but I'm sure if they dig deep enough they'd find something or make something up.
Got 2.5yrs left on a fixed 5.49% deal that reverts to 1.49% above the BBR when it expires so I hope the rates stay reasonably low for a few years, anything less than 4 will do.
It's crazy as that was a blinding deal when we accepted it @6 months ago.
It's crazy as that was a blinding deal when we accepted it @6 months ago.
You have to consider inflation too. Which is likely to drop, over the coming months.
I'd say, assuming you have no other personal credit (CC, Personal loans etc), and you have 3-6months cash in savings for emergencies, and the T's&C's relating to mort overpayments are favorable - now is a good time to begin overpaying.
It counteracts the poor interest rate on savings & current high inflation (savings may loose money), reduces your tax burden and reduces your risk of getting into negative equity as the housing market continues to decline.
It's time to be prudent.
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The shortage in the system is mainly due to lack of inter bank lending not due to lack of savings around. This interest rate cut is more to get more money in consumer pockets whereas the package to recapitalise banks and guarantee inter bank lending is designed to get banks lending to each other again. You could put interest rates up but it still won't bring enough money to get the system moving again. In an ideal world they shouldn't need to cut rates like this and give the banks so much money but we aren't in an ideal world, if they leave things as it is this country is headed into recession anyway and this will only make matters worse, a little cut and people won't tell the difference so they took this option. People will either love or hate this move, reason being everyone looks at things from their own perspective, so if it makes you better off it is great news but if you end up losing money then it is bad one. It is the job of the BoE to look at the situation for the majority and see what would be the best option. A lot of people have come off mortgage deals and had to deal with the big bump of payments and then on top of that soaring energy and food prices and have left a lot struggling for money. When buying a house can you factor in things like inflation going through the roof and suddenly credit drying up like it is? How many times in our history has this happened? Time will tell if this is the right move but I personally think it is a step in the right direction.
Problem we have is the Banks aren't gonna pass these cuts on, even the ones who don't need to borrow money from other banks. They will make huge profits in the good times but spread out their losses to the consumers during the bad times, gotta love em....
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![[TW]Fox](/data/man-of-honor/2009.png){kind=avatar}
Soldato
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I wonder what the best tracker deals available for term were, surely what we've got must have been about the best ever available.
Although I'm not getting blinkered into staying with this for ever. I've got about 24 years left on my 115k mortgage and historically it's averaged maybe 6% - 7% so I will be looking at fixing it for term if any really good fixed rates come out.
I've just read on a couple of sites that lloydsTSB don't have collars in place
Hope not, I'm with them (actually backed by C&G) and I can't lay my hands on the paperwork at the moment.
I have a fixed rate of 5.2% (from 4yrs ago) finishing up next May I think it is. Will be awesome if the rates stay low and the banks bring their fixed rates offers down by then!! Perfect timing
I have a fixed rate of 5.2% (from 4yrs ago) finishing up next May I think it is. Will be awesome if the rates stay low and the banks bring their fixed rates offers down by then!! Perfect timing
Rates as low as 2% are being predicted for next year, your gonna love it
.
Soldato
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Only along time ago did lending get anywhere close to the money the banks actually had..
The banks need more money - they need more people to contract a debt with so they can add the money to their books. This is designed for people to start adding more to the books and also stop people being forced into defaulting because they've over stretched themselves.
This is basically Gordon Brown's "getting the banks to help the populous" that was talked about a month ago = votes.
I have savings and I'll wait whilst the cost of houses decreases and the rate is low at that point I'll get a fixed mortgage at a low rate. In the mean time I feel the crunch and get penalised by the interest rates for any rates based investments I have.
To be honest you'd have been better piling Krugerands in kitchen cupboards over this period..
So those that are sensible and aren't the majority get penalised for the idiocy of majority on the basis of political pressure of the voting system.
Soldato
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Yea I'm with C&G. Surely not having a collar in place is a good thing, if I'm right in thinking a collar would limit how low the tracker could get to.
Soldato
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[TW]Fox;12845179 said:
That's just the way I see it too. This large rate drop will only give a false sense of security to those who still haven't got a clue about finances, and no doubt they are already seeing that extra £100 or £200 a month saving as just more expendible cash to be spent on needless things (or the new mortgage takers will take out even bigger debt whilst they live in their 'rate will always be 3% bubble')
My BS has just reduced my savings rate by 1% (it has reduced it 1.7% since the start of this year - whilst keeping it's mortgage rates virtually the same) - so I am now considering taking all my assets and transferring them to another country (where I can earn almost 3% more on my hard earned savings)
Is that really getting the economy going ?
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