Rates to hit 2% next year.

new_home_owner_3

StevieJ wrote: »

The banks had plenty of spare cash when they were offering deals below BR, I don't think that is true today or the near future, having said that I fully expect margins to shrink as rates increase.

It wont take long for the banks to get spare cash going especially when they are charging 4.5% above the boe rate, and these deals come with large fees.

i mean a loan of 100,000 pound at 0.5% to repay would be 355 pound at 5.99% the payments are 651 pound, now thats 300 pound a month the banks are making, i know they use swap rates to work out fixed deals, but bottom line the rate today they are making 300 pound a month.

Thrugelmir

StevieJ wrote: »

The banks had plenty of spare cash when they were offering deals below BR,

If this was the case why is the BOE now having to pump billion into the banking system to maintain liquidity?

There was never the cash. Just some cleverly dreamt up scheme by rocket scientists to resell the same piece of debt multiple times. A total illusion.

purch

Feb 2010, 40% deposit saved on 250K. May even stick out for the 50% target by Dec 2010 if I feel like it!

What currency is that then ??

Last we heard you were claiming that you were leaving our shores ASAP.

StevieJ

Thrugelmir wrote: »

If this was the case why is the BOE now having to pump billion into the banking system to maintain liquidity?

There was never the cash. Just some cleverly dreamt up scheme by rocket scientists to resell the same piece of debt multiple times. A total illusion.

The liquidity at the time was a fact, it also enabled bad decisions in the US housing markets leading to heavy losses a destruction of bank capital and removal of credit.

steve237

Thrugelmir wrote: »

If this was the case why is the BOE now having to pump billion into the banking system to maintain liquidity?

There was never the cash. Just some cleverly dreamt up scheme by rocket scientists to resell the same piece of debt multiple times. A total illusion.

Which IMO is why we will never see minus BOE tracker rates nor fixed rates as low as we got used to over the years. Like StevieJ, I believe the margins will get smaller, but I don't think the banks will ever lend at rates they used to. Times have changed.

Thrugelmir

StevieJ wrote: »

The liquidity at the time was a fact, it also enabled bad decisions in the US housing markets leading to heavy losses a destruction of bank capital and removal of credit.

Retail banks are leveraged, they are heavily dependent on wholesale funds to maintain liquidity as a % of capital reserves, as required by regulatory requirements.

The unregulated lending wasn't unique to the US. LloydsHbos for instance has minimal overseas exposure so its loan book is affected by domestic not international events.

Thrugelmir

steve237 wrote: »

Which IMO is why we will never see minus BOE tracker rates nor fixed rates as low as we got used to over the years. Like StevieJ, I believe the margins will get smaller, but I don't think the banks will ever lend at rates they used to. Times have changed.

Banks will lend less but at higher margins. Retail banks are a boring but stable business.

StevieJ

Thrugelmir wrote: »

Retail banks are leveraged, they are heavily dependent on wholesale funds to maintain liquidity as a % of capital reserves, as required by regulatory requirements.

The unregulated lending wasn't unique to the US. LloydsHbos for instance has minimal overseas exposure so its loan book is affected by domestic not international events.

What do you mean by exposure? Do foreign mortgage backed securities not count?

The bank's shares fell 24.7 per cent to a record low of 212.5p. HBOS is the British bank with the biggest exposure to mortgage-backed assets, which were the toxic instruments that proved fatal for Lehman.

http://business.timesonline.co.uk/tol/business/markets/article4756790.ece

Thrugelmir

StevieJ wrote: »

What do you mean by exposure? Do foreign mortgage backed securities not count?

The bank's shares fell 24.7 per cent to a record low of 212.5p. HBOS is the British bank with the biggest exposure to mortgage-backed assets, which were the toxic instruments that proved fatal for Lehman.

http://business.timesonline.co.uk/tol/business/markets/article4756790.ece

Comparing securities issued by HBOS to those issued by Lehmans is somewhat misleading. Lehmans was fraudently packaging up assets, thereby misleading investors. HBOS may have bad debts in its mortgage book but how mich is toxic in terms of being subprime is somewhat different.

Lehmans had "assets" of around £600 billion which is about 1.5 times the size of Lloyds & HBOS combined. So in a different league of banks.

The banks benefited from the foreign currency mortgage bonds. As the fall in £ exchange rate reduced their liabilities in terms of repaying the debt.

By lending I am refering to where the loans etc were advanced. HSBS for example operates in numerous countries around the world.

IveSeenTheLight

IveSeenTheLight wrote: »

While it would be a fact that interest rate going from 0.5% to 2.0% would be a quadrupling of the interest rate, your assumption (crystal ball) projection of 2% at end of 2010 is not yet a fact.

Well done for trying though

looks like the projection of BoE rates quadrupling from last year is increasingly unlikely.

Only two months to go and while nothing is certain, I doubt interest rates will be 2% the end of 2010.

By the end of 2011 at a push maybe