Mortgage Rate Rises

Haggisman said:
So the lender is essentially told by the BoE, for every £100 of mortgage payments they are sent, they're only allowed to actually receive e.g. £95, and the other £5 just disappears? Sorry if this seems like a naïve question :cry:

Except, then this sounds like someone IS making extra profit on it?
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We have been redistributing the burden, and we are reaching the point where we cannot redistribute the burden.

Btw low interest rates are gone, welcome back to normality, to high rates.
 
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sigma said:
I've called it out before it's the same group of posters who ruin most threads. Mods don't care. I'd possibly go as far as saying mods condone it.
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The mods are watching and acting. Keep reporting any posts that are trolling and we'll deal with it

[Edit] If you have any specific complaints you want to talk to the mod team about, open a thread up in FCD (Forum Content Discussion)
 
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BUDFORCE said:
Then non-deposit taking lenders which is like the one I work for, we do not offer any savings accounts at all, so all the money we lend in mortgages is borrowed ourselfs.We typically borrow this in tranches at a fixed rate so, £25m at a time, and then lend in out at a higher rate (or try to) and pocket the difference. We then do whats called securitisation, which is a simply as I can put it, is we take all our live mortgage accounts, and put them into a seperate limited company, these are then externally audited. Provided that is ok, we then sell this limited company and all its live mortgage accounts and a mortgage backed security, or a longer term investment.

The entities that buy and sell these tranches of money or securities can be anything, from very wealthy individuals, other banks, pensions funds etc. It's all just money going around in a big circle and trying to make a margin each time.

What cuased 2008 and what the concern is this time (mainly due to the Ukraine war) is if this circle of money suddendly stops, the whole thing falls on its arse and collapses. It only takes a few of these to stop lending to each other out of fear, and wanting a return on their capital, for everything to snowball.
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From my understanding, it was the continual repackaging of these securities with much higher risk tranches (B and C) which were repackaged as lower risk tranches (AAA, AA and A) with no actual backup to explain their sudden increase which was a big factor.

Effectively they were taking crap loans (high risk, high LTV etc) and bundling them in with a bunch of good loans (low risk, low LTV etc) then selling them off under a package marked as good e.g
AAA when they were far from it.

When the underlying loans from the "C" rated sections of this "package" started to fail (arrears, repossessions), it caused the higher rated loans to also collapse in value.... The Big Short example of Jenga is a good analogy.

They would start taking these crap packages and then repackage again to get back to AAA rated securities and the whole thing started again...
 
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Richie said:
From my understanding, it was the continual repackaging of these securities with much higher risk tranches (B and C) which were repackaged as lower risk tranches (AAA, AA and A) with no actual backup to explain their sudden increase which was a big factor.

Effectively they were taking crap loans (high risk, high LTV etc) and bundling them in with a bunch of good loans (low risk, low LTV etc) then selling them off under a package marked as good e.g
AAA when they were far from it.

When the underlying loans from the "C" rated sections of this "package" started to fail (arrears, repossessions), it caused the higher rated loans to also collapse in value.... The Big Short example of Jenga is a good analogy.

They would start taking these crap packages and then repackage again to get back to AAA rated securities and the whole thing started again...
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They keep passing it on and the next would cut and dice it up passing it on to the next etc..

If you were knowledgeable you could ask the bank if they could prove they still had your debt, they kept this part secret from the public. If they could not prove they owned it or prove who owned it ( which they could not) you are debt free.
 
stuman said:
So if they are not linked are we saying the driving factors are risk and ‘interbank lending greed’? as the risks go up a little - investors want a compound increase in ‘security’?

And at the same time, if investors can get Bank of England money for 2% return (which is quite safe), if you want to generate mortgage investment with the inherent risks you need to get well ahead say 7%?

Then as talked about pre-Covid, the government could just back the risk to bring it back to parity with other investment options?
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Why does it have anything to do with greed? It is a financial system. A person with savings might suggest low rates were greedy home owners wanting to borrow money on the cheap. It's reductive and unnecessary.
Why should the government back the risk? I don't want to be bailing out the banks again at huge cost to the tax payer.
Richie said:
It's crazy how 10 year is now the lowest rate where the longer terms were traditionally higher.
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It illustrates just where banks think rates are going after 2yrs. Frankly, I think anyone fixing now is going to be looking back at a very bad deal. But maybe that is wishful thinking as someone whose current deal ends in Feb and didn't bother getting out early!
200sols said:
It seems it actually is just made up numbers, they create a liability on the balance sheet and then create the money into your account.
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This is absolutely not true. Banks lending money for mortgages need to get it from somewhere with various sources mentioned previously.
Central Banks can effectively do this (now currencies aren't gold backed) but others can't.
 
Kamakazie! said:
This is absolutely not true. Banks lending money for mortgages need to get it from somewhere with various sources mentioned previously.
Central Banks can effectively do this (now currencies aren't gold backed) but others can't.
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Therefore, if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.


This also means as you pay off the loan, the electronic money your bank created is ‘deleted’ – it no longer exists. You haven’t got richer or poorer. You might have less money in your bank account but your debts have gone down too. So essentially, banks create money, not wealth.


Banks create around 80% of money in the economy as electronic deposits in this way. In comparison, banknotes and coins only make up 3%. Finally, most banks have accounts with us at the Bank of England, allowing them to transfer money back and forth. This is called electronic central bank money, or reserves.
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www.bankofengland.co.uk

How is money created?

Most of the money in the economy is created by banks when they provide loans.
www.bankofengland.co.uk www.bankofengland.co.uk
 
Kamakazie! said:
Why does it have anything to do with greed? It is a financial system. A person with savings might suggest low rates were greedy home owners wanting to borrow money on the cheap. It's reductive and unnecessary.
Why should the government back the risk? I don't want to be bailing out the banks again at huge cost to the tax payer.

It illustrates just where banks think rates are going after 2yrs. Frankly, I think anyone fixing now is going to be looking back at a very bad deal. But maybe that is wishful thinking as someone whose current deal ends in Feb and didn't bother getting out early!

This is absolutely not true. Banks lending money for mortgages need to get it from somewhere with various sources mentioned previously.
Central Banks can effectively do this (now currencies aren't gold backed) but others can't.
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Agree with point 2.

Anyine fixing for more than 2 years at 6pc plus is probably onto a loser.

Its a hard choice though. But I would be on a tracker now if I was forced to remortgage
 
Kamakazie! said:
It illustrates just where banks think rates are going after 2yrs. Frankly, I think anyone fixing now is going to be looking back at a very bad deal. But maybe that is wishful thinking as someone whose current deal ends in Feb and didn't bother getting out early!
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Banks set their mortgage rates depending on how much it costs to borrow each tranche of money they book in. The rates that banks offer are not based on their predictions of base rate movements; that would be far too risky.
 
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We paid off our mortgage last year - and I'm eternally grateful that we were in the position to do so while our 1.49% deal was coming to an end.
There was a house up our road for sale which we offered £420k on a few months ago; we'd have had to mortgage the remainder after selling our home (worth about £285k). I'm very glad we were 'pipped to the post' by someone else!

At the rate of our DIP (around 2.8% from memory) it was a good chunk out of our disposable income, but at 5%+ it'd have been a real burden. I probably would have pulled out by now in all honesty.
Most of my friends are mortgaged to the hilt, which is painful to see - with a lot of them having mortgage deals ending this year. :(
Hopefully this is the peak, and we can start to see rates dropping soon.
 
mattyprice4004 said:
We paid off our mortgage last year - and I'm eternally grateful that we were in the position to do so while our 1.49% deal was coming to an end.
There was a house up our road for sale which we offered £420k on a few months ago; we'd have had to mortgage the remainder after selling our home (worth about £285k). I'm very glad we were 'pipped to the post' by someone else!

At the rate of our DIP (around 2.8% from memory) it was a good chunk out of our disposable income, but at 5%+ it'd have been a real burden. I probably would have pulled out by now in all honesty.
Most of my friends are mortgaged to the hilt, which is painful to see - with a lot of them having mortgage deals ending this year. :(
Hopefully this is the peak, and we can start to see rates dropping soon.
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Just out of curiosity, what would you roughly define as "mortgaged up to the hilt"? I'm constantly trying to gauge what our situation is since we finally got in our house a few months ago (probably at peak price!).
 
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