Should the Government encourage lower Interest Rates???

magicnumbers

I am I the only one that think the Government might have got it wrong in encouraging lower interest rates to boost the housing economy?

I as a saver technically lend my money to the Building Society and expect a return on my investment. If the return (Interest Rate) is low there is no incentive for me to lend my money to them, especially if there is a risk of the Company going bust.

Now turn the tables, the Building Societies have no incentive to lend to borrowers if they do not get an adequate return on their investment. The Government encouraged the Bank Of England to reduce rates and the Building Societies are advised to pass this on.

Would you really lend money to anybody when there is a risk that you might not get it back for a mere 2 % or similar?
Surely if the interest rates were higher at the Building Societies it would encourage them to lend more and savers to invest?

Everything the Government have tried so far has had no effect, it just seems to be drawing the process out.

Yes I know that houses might be repossessed because people have borrowed more than they can afford to repay, but houses are being repossessed now anyway!

I would welcome anybody's opinion

purch

the Government might have got it wrong in encouraging lower interest rates to boost the housing economy?

I think you will find that the Government are worried more about the wider economy, than just the narrow Housing economy (market)

Dan:_4

magicnumbers wrote: »

I as a saver technically lend my money to the Building Society and expect a return on my investment. If the return (Interest Rate) is low there is no incentive for me to lend my money to them, especially if there is a risk of the Company going bust.

Whats the alternative?

econo_2

Actually magicnumbers what you now have is not no incentive to save but less incentive to save than the little you had before. A lot of this came about by cheap credit from monetary policy set way too low for a long period. If it was set higher we would have had much more encouragement to save and less to borrow beyond our means resulting in the various bubbles.

Problem is NOW we have this appalling mess the government thought that by lowering rates as they have we were going to see the financial sector doing the same for business and Joe punter.

That hasn't happened to the extent desired. So one has to ask if it would have been better to keep rates up and have attracted some savings? Bank interest rates for savings have steadily fallen, but mortgages for anything longer than 2 years remain stubbornly high with banks still wanting it both ways. Surprise surprise.

The alternative would have been the government getting out the way and letting the market function as it should. We would have seen a more dramatic initial collapse and downturn but a far quicker recovery than we will now see with their meddling and incompetence, which will no doubt end with people being in far more debt and trouble than they would have been.

You do not solve these problems by being in too much debt and then borrowing more to get out of it which is what the government is advocating.

If it wasn't so serious for ordinary folk it would be comical in the extreme.

macaque_2

purch wrote: »

I think you will find that the Government are worried more about the wider wider economy, than just the narrow Housing economy

Really? Has there been a change of government policy that we were not told about?

ad44downey

magicnumbers wrote: »

I am I the only one that think the Government might have got it wrong in encouraging lower interest rates to boost the housing economy?

Sensible people have been saying this for literally years on this forum. Low interest rates only encourage silly people to borrow too much. little wonder we've had a calamitous boom and bust.

dealsearcher

There was a news report yesterday (10 March) which said that loads of people were withdrawing their savings. They didn't know where it was going.

If savers are withdrawing their money because of ultra low interest rates the government is going to have to put even more tax payers money into the banks.

bendix

The government is not reducing interest rates to boost housing. Housing is the least of its concerns right now. The Bank of England is reducing interest rates to encourage economic activity, be it investment by companies or spending by individuals, thus re-lubricating the engine of economic activity that ground to a halt as a result of the credit crunch.

drc

bendix wrote: »

The government is not reducing interest rates to boost housing. Housing is the least of its concerns right now. The Bank of England is reducing interest rates to encourage economic activity, be it investment by companies or spending by individuals, thus re-lubricating the engine of economic activity that ground to a halt as a result of the credit crunch.

Unfortunately though, the banks aren't doing their part. Another thread highlights this with a case of a large company with orders on its books going into administration because the bank will not increase its overdraft to aid cashflow. The banks are their own worst enemy. They can't see the wood for the trees. Unfortunately the banking sectors pigheadedness will not increase their profits but cause even more money to flow out of the system because businesses fail if they cannot get cashflow help and mortgagees default if they do not have jobs with such companies to pay their mortgage to the bank. It's a vicious circle created by the banks.

maninthestreet

The Government wants us to spend our savings, thereby boosting the economy.

Guy_Montag

maninthestreet wrote: »

The Government wants us to spend our savings, thereby boosting the economy.

But if we spend our savings, then surely the banks will not be able to lend;)