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[MSE Lawrence]

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's 'Mortgage Lenders sadly absorbing the rate cuts...' Blog.

Click reply to discuss below.

[Chrysalis]

It seems the banks are taking brown and the other governments for fools and using the cuts to boost profits. Also the media havent picked up on that the bank of england supposedbly independent then cut rates on the whim of a political decision.

I expect we will see more base cuts and eventually retail cuts will be made but far below total base rate cuts.

[JimmyTheWig]

When they first gave away the power to set interest rates, I remember saying I thought it was the banks who set the rates anyway - you would always hear on the news that "Halifax had cut their rate", or "Abbey National had increased their rate", etc.
Until now, though, the banks have generally (with notable exceptions) followed the Bank of England's lead. Up until now, that is. Looks like we might be going back to the situation of the banks deciding for themselves what rates they want.

[trf197]

I thought mortgage costs were based upon the Libor rate which is currently divorced from the BOE base rate. I don't think they are profiteering, I think they are trying not to go bankrupt!

trf197

(expecting to be shot down in flames!!!)

[Bernard Coleslaw]

Originally Posted by trf197

I thought mortgage costs were based upon the Libor rate which is currently divorced from the BOE base rate. I don't think they are profiteering, I think they are trying not to go bankrupt!

trf197

(expecting to be shot down in flames!!!)

That was my understanding, too. Still, best not let it get in the way of a good story, eh?

[meester]

What a load of misinformed populist codswallop.

Bank funding costs are *increasing*, the base rate has nothing to do with it.

Besides which, banks are going out of business, they are hardly in a position to be cutting rates/profits.

[Paul_Herring]

Since mortgage rates are more a product of LIBOR than BoE base rate, I wouldn't expect mortgage rates to go down until LIBOR starts falling.

[ManAtHome]

Banks could drop their rates if the BoE made unlimited funds available at a smidge over their declared rate. Dropping rates when LIBOR is spiking up seems a bit crazy to me, and I'm not surprised that there is now a scramble by the banks to drop BoE-linked products or increase the premium (very similar to the back-end of last year - won't get fooled again..?).

[sdooley]

banks are cutting losses not increasing profits

they are all reporting profits but with large 'provisions' which if recognised as losses would push them overall into loss (few possible exceptions e.g. HSBC(ex-UK), Co-op)

losses are fine so long as it doesn't affect solvency

but most banks are so highly leveraged

so the best answer is recapitalisation

but you won't get investors (other than perhaps HMG) to support a recapitalisation if you continue writing unprofitable business

recapitalisation gives you cash (so do deposits, you have some great savings offers at the moment - 2.3% above base rate for a year from one of the building societies)

in short - great rates for savers for the foreseeable future but any bank which is offering great savings rates and good mortgage deals is writing unprofitable business (maybe in the hope the taxpayer will pick up the difference)

[tjb500]

I'm just coming to the end of a 2 year fixed rate with the c an g. I had a 5 year fixed rate deal lined up for 6.25% with a 995 fee to pay. I called them yesterday to cancel it in light of the announcements on monday morning by GB and AD. I visited the c and g website this morning and the rate has actually gone up since yesterday. Has the Governments plan not filtered through to the c and g, surely they are part of the Lloyds TSB/ HBOS set up that the goverment wants to offer 2007 lending through to home owners etc. It seems they've automatically gone the other way.