Mortgage Rate Rises

gazref said:
Sounds like parasites skimming off the top tbh. your example people's rates went up 4-5% and boo hoo lenders had to lower margins and only skim 1%.
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You do realise this is how the entire western economy works, it's all just money going around in a huge circle really.
 
BUDFORCE said:
The whole thing is a mess.

Mortgage lenders despite what people might thing are having a hard time at the moment, if you look back 12 months when lenders were offering say 3.5% mortgages, they were probably either borring that money at 0.5% or paying savings rates of the equivalent. So thats 3% margin.

The cost of money for non-deposit taking lenders has soared, so if your interest rate is 7.5% (as posted just above for example) you may be borrowing that money at 6.5%, so thats one 1% margin.

Mortgage lending is all about margins and balancing, all it always has been. Mortgage lenders work in different ways from non-deposit taking, which will itself borrow all the money it lends, to your old school traditional building society where almost of the money lent out as mortgages is money invested in that bank from its savers. And then a mix in between, typically your big commercial high street banks for example, have savings account but also trade a lot of money.

But it gets worse then narrower margins.

You may have hundreds of millions worth of mortgages lent out on low fixed rates, but you need the money to lend new mortgages, for deposit taking banks one way of encouraging that is to increase savers rates, but you can't raise those too much, or you'll end up paying your savers more then you are getting on your mortgages and you have a negative margin, this will sort itself out over time, but as rate increases have gone up so fast, the effect at the moment is very sharp. In fact that will be the case for many, although new lending is only done on new money (you cannot lend out money you dont have), that will still affect the balance. Added to that the regulators after 2008 have stated that all depoist taking banks must have a certain amount of capital at all times sitting there, just in case there is 2008 v2 so the goverment wont have to spend as much bailing them out, and you cannot lend that out.

Then, even more is how mortgage lenders have to stress everything, in case of future rate rises as part of the regulation. So 12 months ago and prior, during sustained low rates, all mortgage lending was stressed for exactly what is happening now, EG if rate raises will you still be able to pay your mortgage? - which don't get me wrong, is good otherwise we would be even more ****** right now then we are. The problem is, now we are in a period of "stress" we still need to stress the new money, as lets face it, in another 6 months time rates could be 10%. But because its been such a short space of time with the rises, nothing has had a chance to adjust, so whilst it may have fit 6 months ago, it doesn't today.

It will start to adjust and balance out in time, but it'll take a while, a year minimum probably two. Right now smaller lenders are literally folding but its accross the board, even the likes of Barclays/Natwest etc are a taking a hit, obviously they are far more resilient, and I am not saying we are at a 2008 yet, but its still a right mess.
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No one gives a **** about mortgage lenders and the banks.

They can go and **** themselves for all I care.
 
Jono8 said:
No one gives a **** about mortgage lenders and the banks.

They can go and **** themselves for all I care.
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Whether people care about them or not doesn't change the way they operate. If they can't be profitable then nobody would get a mortgage because there would be no incentive to lend.
It's not so different from most businesses - offer a service/product that costs £X to provide for a cost of £X+Y. If Y shrinks too small for too long then you're out of business.
 
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In your X&y scenario Y would constitute a tranche of inefficiencies in the form of vig and bonuses en route to the consumer. They can still be profitable putting their money to work and consumers paying less by cutting out the appendages. Or would you prefer middle men bloating costs and draining money from the economy?
 
Jono8 said:
Oh no!

i wonder what that would do to house prices...
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I assume you expect they would fall like a stone as you'd be limited to cash buyers only.

I'm not sure it would happen though as every house builder in the country would stop building stuff

I think the result would be all people wanting to get out of renting become limited to buying static caravans and fancy sheds (aka lodges) to live in

Grim
 
BongoHunter said:
I assume you expect they would fall like a stone as you'd be limited to cash buyers only.

I'm not sure it would happen though as every house builder in the country would stop building stuff

I think the result would be all people wanting to get out of renting become limited to buying static caravans and fancy sheds (aka lodges) to live in

Grim
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2008 financial crisis thats what happened
Basically nigh on impossible to get a new mortgage or remortgage to a different lender.
Same lender may offer you a bum deal (they have to offer your something) so you may be stuck with a high rate and no where to go.

In the mean time the industry starts to shut down with only "distressed" sales taking place. Ie those forced to move for a job, or people going into homes etc

Market will "correct" at this point.

Some people think we gave the money to the banks for reasons other than restoring a functioning market.
 
Mercenary Keyboard Warrior said:
Some people think we gave the money to the banks for reasons other than restoring a functioning market.
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Banks are like casinos - the house always wins.

I realise we had to bail them out but it would be nice that, now the shoe is on the other foot, the banks would be nice and, at the very least, keep the interest rate spread lower rather than gleefully making large profits on people's misery.

We helped them out but they don't seem to want to return the favour...

But then - it's all about the money
 
Richie said:
Banks are like casinos - the house always wins.

I realise we had to bail them out but it would be nice that, now the shoe is on the other foot, the banks would be nice and, at the very least, keep the interest rate spread lower rather than gleefully making large profits on people's misery.

We helped them out but they don't seem to want to return the favour...

But then - it's all about the money
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Not sure what you mean about returning the favour.
I am receiving significantly more interest on savings. Mortgage rates seem quite tightly linked to BOE base rate.

FWIW most businesses are like casinos if your definition of wining is making a profit.
 
matt100 said:
They're not trying to stop the economy growing?
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The Govt isn't, but the BoE technically are, as with a simplistic explanation growth equates to inflation (there are times you can get one without the other, but this isn't one of them) and a growing economy (which tends to lead to wage & price rises) is acting counter to the BoE's aims.
 
Mercenary Keyboard Warrior said:
Not sure what you mean about returning the favour.
I am receiving significantly more interest on savings. Mortgage rates seem quite tightly linked to BOE base rate.
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They are being investigated for the slow rise in savings rates compared to lending rates as well as the increasing gap between the two. I'll guess we'll find out if there is an issue once the report comes out

Mercenary Keyboard Warrior said:
FWIW most businesses are like casinos if your definition of wining is making a profit.
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Not really as UK banks, unlike a lot of businesses, aren't being allowed to fail... Do we currently have a public bailout of Wilko's, for example?
 
Freakbro said:
The economy still kept growing, that'll put pressure on the BoE to keep on with the interest rate rises
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Job losses in some sectors are creeping up and the amount of job adverts has fallen significantly so I think the current rate will be very effective at reducing inflation.
 
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