MSE News: The mortgage ticking timebomb

Conrad

No doubt there is a thread somewhere in which disgruntled savers bemoan the low rates on deposits.

Just as bargain hunters on the one hand declare thier bargain hunting prowess and in the next declare it's disgusting some employer pays the bare minimum wages/ slave labour in India. Not enough joined up thinking.

It's the same with people declaring Brown is nicking too much of thier money in Tax and in the next breath bemoaning cutbacks to thier local hospice!!

Noble_Savage

Interesting point, Conrad. I wonder what response this thread would get if it was posted in the Saving and Investments board?

MSE_Martin

Noble_Savage wrote: »

Thanks for responding to that one point, Martin. I wonder if you would like to say something about those lenders who raise their funds mainly from the retail savings market? Suggesting that 0.50% is their cost of funding would be somewhat disengenuous, wouldn't you agree?

I'm enjoying reading the thoughts above from everyone and not going to start answering every point - this is a discussion thread and I've had my say in the article. So i'll do this one then shut up

To an extent I'd agree. I was never suggesting that all funding is based at 0.5% - hence including swops in the piece (which is intended for a generalist not specialist audience to you can't go too hardcore).

Yet with quantative easing, and base rates at 0.5% there are some cheap funds around.

As for banks generating funds from savings - the vast majority of savings accounts and savers money pay way less than 1%. Of course the top savings pay more - and some of that is a mix of fund generating and gaining market share.

However the point still stands - the margins have widened - too far in my view and that is worrying if rates return to more traditional levels.

Martin

WestonDave

Morally I'm not convinced there is a case for a needy group that needs help here. Those who are likely to be caught if this rates timebomb explodes are almost entirely those who should never have been allowed a mortgage in the first place if sensible lending limits had applied (and its worth remembering that if a top LTV limit of 90% had applied the bubble inflation in house prices would probably have been less so the chances of falls in value causing equity evaporation would also been much less). I don't think its right to argue that these people somehow have a right to cheap home ownership effectively at taxpayers and savers expense, when others bothered to save up.

Secondly I think margins will ease as rates start back up - most banks started coming down with the BoE cuts but stopped once BoE rates dropped below a certain point. That I think has got to do with the need to pay funders at least something, and with BoE rates below 2% it gets harder to maintain that on previous margins. It may be that where margins were 1% over base they come out at 2% whilst banks are rebuilding capital and freeing themselves from state ownership, but over time I suspect competition will eat at that as well.

Whilst I would argue lending should have been better regulated all along, the trade off from what actually happened is that some sensible people were able to take advantage and use low rates, and accessible finance to work hard to secure a home for themselves, but against that, others who had no concept of saving and waiting for what they want got a temporary taste of things but may ultimately find themselves back where they perhaps should have been all along. Arguably some fall out from this crisis is necessary to stop a repeat in 5 years time when people suddenly start thinking again that its OK to have 95%+ mortgages.

Reaper

My somewhat controversial view is that mortgage rates should not be any lower, regardless of whether the banks are profiteering or not.

People seem to have a very short term view. When they set out to buy a house they work out what they can afford at current interest rates and forget about the future. If mortgages rates went down to 1% people would mortgage themselves up to the eyeballs, bring back house inflation, and then howl with surprised protests when rates went up again.

The fact is the base will go up again in the future, and it could be a lot if the feared high inflation puts in an apearance. Better that the mortgage market is dampened and house prices drift down further than people over-commit to houses they will later lose.

Hopefully when base rates go up again margins can be shrunk once more to ease the pain.

pc72notout

There are two distinct situation here.

1) Is that new mortgage deasl on offer are uncompetitive.
2) Borrowers on existing mortgage deals linked to lenders Standard Variable Rate are not benefiting from the cut in Bank of England Base rate.

In the first scenario I think this is a difficult challenge for anyone other than the government to address. How to you force a company to enter into a new contract if it is not willing to do so.

In the second scenario there is in my view either an actual or moral breach of contract. Lenders have only reduced their Standard Variable Rates by a small amount in comparison to the movement in base rate. A typical example being:

Base rate Lenders SVR
5.5% 6.99%
0.5% 4.49%

Base rate has reduced by 5% but lenders SVR has reduced by 2.5%.

It should be subject to exactly the same campaign as the bank charges. It is wrong.

_Andy_

SVRs don't have to move in line with the base rate (aside from situations like the old HSBC SVR which is never more than 1% above, contractually). Nothing 'wrong' about it.
You may as well say that all supermarkets must reduce the price of bread by exactly the same amount if the cost of wheat reduces.

Dan_1976

Are we really surprised that we are being screwed by banks?

They have a big hole to fill and us to pay off. They will try to make as much money as pos in the next year to build larger reserves and protect backsides!

As a country we are going to see another bump in this long road. People are still spending on cards and borrowing money. People are doing ok at the mo as rates are low on mortgages etc. However this will change, council tax is on the up and utility bills are not going to come down.

Banks know this and are covering !!!!!!!

Dan_1976

Ps. Martin may drop the charges thing soon, see the bbc news pages.

LizEstelle

Why the sudden conversion, Martin?

I approached you on this issue over 3 months ago and you seemed none too keen to get involved:

"Yet frankly this is a massive issue that lots of people deal with all the time - for me to join in and put resource to it is like throwing a pebble in the sea to try and cause waves - i prefer to use my resources where they can have an impact."

Ring a bell?

Or, perhaps this new article is meant for 'internal consumption' only and is not the start of a new campaign..?

It would be good to think that someone of your public profile might finally start giving the lenders a tough time on this festering sore of their fixed rates. As you now say but would not acknowledge back in August, people with influence are doing precisely 'nowt' about it, so it would be high time this received some very welcome publicity.