Why are the loan rates so high?

lamorna23

About 4 years ago I got a personal loan for £6000, the rate was 6.9% and the BoE base rate was about 4%. With the BoE base rate now at 0.5% why aren't we seeing loan rates at 3% or 4%. All high street banks seem to offer loans at a rate of 8.9%, they should be ashamed!! If they offer small loans (£2000-£3000) at low rates surely that will encourage more people to spend again, with that kind of sum you could buy flat screen TV, leather sofas, computers etc. the kind of items that we all like to have. Am I missing something here? Obviously they still need to lend responsibly but at 8-9% no chance. Isn't it better to lend 1000 people a £1000 than, 100 people £10000?

Someone explain to me why the rates are so high.

OMAR

:money: :money: :money: :money: i agree

hundredk

lamorna23 wrote: »

Someone explain to me why the rates are so high.

Wonder if it has anything to do with paying bonus's to all those bankers:rolleyes2

BenL

The banks don't get to borrow at the BoE base rate. They use a different rate (LIBOR) which is higher.

They are also pricing in the risk that in this world of economic mess and job cuts the risk of not being paid back for unsecured loans is high.

hundredk

BenL wrote: »

The banks don't get to borrow at the BoE base rate. They use a different rate (LIBOR) which is higher.

They are also pricing in the risk that in this world of economic mess and job cuts the risk of not being paid back for unsecured loans is high.

In which case take a £6000 mortgage over same term as a loan and secured against a property at 3-4% ??- can this be done or are there minimum amounts to class as a mortgage?

lamorna23

I see, I knew there was the risk element which but I was more confused about the rate compared with the BoE rate, which as you have pointed out isn't rate the loans are based on.

lamorna23

Well after checking out the current LIBOR rate (around 2%), I'd have thought the unsecured loan rates would be around 6% at most. I'm not privvy to exactly how they work out the rate and to be fair mortgage rates are around that mark, but I still think it's laughable they offer loans at 8.9%. I suspect the extra is due to the risks but it's not helping people spend, not that I want people to overspend either... that's what got us into the current mess.

Sprightlyone

Has anyone ever thought that this may and probably is to do with the fact that neither the bank lender, the BofE or Libor dictate the interest rates?

Search the consumer forums for ' Securitisation '. What happens (and is the reason Northern Rock and the others went belly-up) is that the lender 'sells' (securitises) your mortgage or loan to offshore investors in great big packaged up portfolios of properties to raise money to lend to new borrowers. ( Gordon Brown is having difficulty 'selling the country's debt' you might hear - that's him securitising the country's debt to borrow more to bail the country out of this mess he put us in). The Lender puts up for example £100 million worth of mortgages or loans they have provided us all with and these are sold via trustees into what is called an SPV - a Special Purchase Vehicle which is a group of rich & offshore investors buying into to the interest returns on our loans and mtgs. So, the interest rates we pay are DICTATED by the investors (SPV's) not Libor, Bof E or anyone else. ALL the big names do this - Abbey for example, do it through Holmes Financial N0 (?) - (there's loads of them no.1, 2 3 etc) plc. Trouble is this 'sale' is meant to be registered at the Land Registry, but they don't do this (Criminal Offence) so they can dodge tax and get the benefits.

Now Northern Rock as another example we all think just made bad investments and it's a global knock-on problem, but that's not so IMO. Northern Rock lent to higher risk related borrowers and also lent up to 125% against loan to value of the property. Fine all the time money flowed through the country in our feel good factor lives and big bank employee bonuses, but people began not paying their mortgages or loans and NR couldn't pass their securitised interest payments to the SPV investors and it was the SPV's who brought Northern Rock down who came looking for their money and NR had none. Which begs the question - WHO did this government bail out ? - the rich investors in the SPV's ( cos I'm sure they got paid once our tax money came in) or the bank itself who didn't own our mortgages and effectively are just ' Administrators ' of our mortgages on behalf of the people (SPV's) who they 'sold' our mtgs and loans too?

And that begs another question - when NR or A.N.Other bank or loan company issues repossession proceedings against the borrower, have they got the right to do so in their name as they no longer OWN our mortgage - the SPV do...Everyone with repo action against them should put the bank or finance company to strict proof that they are legally entitled to do so.

Anyway, as far asinterest rates are concerned, the reason the rates don't come down is because it is the SPV who dictates - no-one else!

You might read this and say to yourself " That can't be true" well dig my friends IT CAN.

CLAPTON

In any rational / common sense system, when there is a lot of demand for money (i.e. plenty of people wanting to borrow) but a shortage of money to lend then one would expect the interest rates to be high.

The wonder is not that CC and unsecured loans command high APRs but that mortgages interest rates are so low.

If the free market was working then mortgage rates would indeed be high because the demand for them is high; banks would then offer high saving rate to encourage people to save with them.

However, in practice mortgage rates are kept down by government action.. partly threats and partly as they now own half the banking industry; elsewhere interest rates are high.. no more loans at 6/7/8% and now typical CCs are charging over 20% APR

lynzpower

They have to make the money somewhere!

Mortgages at an all time low, for many trackers and those going on the SVR

People heading into default in thier droves with redundancy, savings not being topped up or being reduced in the downturn,. Im surprised loan rates are as low as they are to be honest.

Sprightlyone

CLAPTON wrote: »

In any rational / common sense system, when there is a lot of demand for money (i.e. plenty of people wanting to borrow) but a shortage of money to lend then one would expect the interest rates to be high.

The wonder is not that CC and unsecured loans command high APRs but that mortgages interest rates are so low.

If the free market was working then mortgage rates would indeed be high because the demand for them is high; banks would then offer high saving rate to encourage people to save with them.

However, in practice mortgage rates are kept down by government action.. partly threats and partly as they now own half the banking industry; elsewhere interest rates are high.. no more loans at 6/7/8% and now typical CCs are charging over 20% APR

Don't lose sight of this securitisation I mentioned. The gov't don't regulate the interest rates the SPV's do...the banks don't own your mortgage or loans the SPV's do -you think they might - they don't.