Bank Woes Ensure Interest Rate Will Stay Low

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Graham_Devon wrote: »

LONDON - The Bank of England Wednesday indicated that its key interest rate is likely to stay on hold for much of next year, and that there remains room to further increase its bond-buying program.

Ok, this is bad. They are basically warning us that QE may go even further than the £150bn planned, while keeping rates at an all time low.

They know something that we don't.

This was dangerous to start with, but extending it, and basically stating that they could use QE further? Thats pretty damning.

This is starting to get into teritory which I'm finding frightening, and I knew we had to do a lot and suffer a lot of pain, but this is somewhat out of my comfort zone now.

The problem is Graham the knobs who over extended themselves with huge mortgages and debts have to be bailed out, whatever the cost:rolleyes:, the reason ? simple, if interest rates rose at any point in the next 12 months, and the banks put up their SVR's to lets say 8% it would leave hundreds of thousands, possibly 1 million plus homeowners on the point repossession, there would highly likely be rioting and civil unrest.

This is not hyperbole, the price of property got so distorted from reality that we face more repo's this year than the early 90's when IR's were 10-15%, even though now....

1. Base rate is 0.5%
2. BoE is printing money.
3. Various government schemes to help over indebted families.

The powers that be realise the housing bubble has sent the country into meltdown, yet ironically the only way they think they can reverse the meltdown is to reinflate the bubble.

StevieJ

The BOE were still fighting inflation last August when a number of commentators were callling the opposite. I will therefor reserve judgement on these forecasts

lemonjelly

Most mortgage lending rates are also creeping up aren't they? Despite the fact that the BofE rate has remained the same, as have savings rates...

So though the banks are saying tey're lending more, & the level of deposit required is starting to fall (nominally I'd argue) they'll still be coining it in over the term!

Thrugelmir

lemonjelly wrote: »

Most mortgage lending rates are also creeping up aren't they? Despite the fact that the BofE rate has remained the same, as have savings rates...

So though the banks are saying tey're lending more, & the level of deposit required is starting to fall (nominally I'd argue) they'll still be coining it in over the term!

Savings rates are creeping up as banks need to attract deposits in order to lend money out which obviously will be higher as well. The BOE base rate is only an inter bank rate not a commercial rate.

Banks are in business to make a profit.

inspector_monkfish

Thrugelmir wrote: »

Savings rates are creeping up as banks need to attract deposits in order to lend money out which obviously will be higher as well. The BOE base rate is only an inter bank rate not a commercial rate.

Banks are in business to make a profit.

LIBORs continue to fall

zcacmxi

The average mortgage is for 25 years.

If people take a mortgage out now while base rate is 0.5%, even if it stays this low for a year or two, they are sure to feel it when it goes up at some point in the next few years.

It can be argued that percentage wise it's a lot worse too than in the 80s. When rates were 6%, and they went to 12% then the mortgage holder doubled the amount of interest he/she was paying.

Now, if they go up from 4% to 8%, the effect is the same. The amount of interest is doubled. So rates don't have to go up to very high levels for the interest to double!

I'd be extremely careful about borrowing to the limits whilst rates are this low. I'd want to leave a significant buffer for WHEN they start rising. Remember, nobody is debating IF interest rates will rise. They are debating WHEN they will rise!

inspector_monkfish

zcacmxi wrote: »

Remember, nobody is debating IF interest rates will rise. They are debating WHEN they will rise!

...and they are still debating that in Japan

purch

exactly, what i'm saying is, the Banks aren't playing fair!!

they could 'resume normal lending' if they wanted to, as they have plenty of cash, but they are choosing not to at the moment

No they can't

They could resume ABNORMAL lending, which was their practice over the last decade, and what got us into this mess.

NORMAL lending cannot resume until their balance sheets permit, which could be a long time.

inspector_monkfish

purch wrote: »

No they can't

They could resume ABNORMAL lending, which was their practice over the last decade, and what got us into this mess.

NORMAL lending cannot resume until their balance sheets permit, which could be a long time.

:rotfl:good point!

Thrugelmir

inspector_monkfish wrote: »

LIBORs continue to fall

Savers can now lock into 3% to 4% rates. Correspondingly borrowers with low LTV are stuck with rates over 6%.

Average SVR is now around 3.5%. Some 3 points above base.

Historically SVR mortgage rates tracked base by 2 points. With low wage inflation money is expensive to borrow.