Are interest rates strangled?

Harry_Powell

Graham_Devon wrote: »

But has saved shed loads of people from the loss of their homes. 5 million plus have more to spend, and in some cases, hundreds more to spend each month.

So they have been effective for those lucky enough to take advantage, and have been hailed as being effective by the government and many on here.

I think you've fallen for Labour spin here, Graham. Low interest rates are primarily to help the banks rebuild their balance sheets. The fact that some people were lucky enough to have low tracker rates is neither here nor there. The sort of people who are likely to need protection from repossession are the ones who have a crap LTV and these will generally not be on the receiving end of low BoE rate benefits.

The evidence is that the government has done nothing but rattle a sabre at banks that have high SVR's. If they really lowered rates to help people, rather than to help the banks, they would lower SVR mortgage rates on the 'state' banks, forcing the non-state banks to do the same.

Pop into the DFW and ask these guys what their mortgage rates are, you'll find 6%+ for most.

hillcats

HAMISH_MCTAVISH wrote: »

My deal is a tracker of 0.5% above base, then onto SVR which is capped at 2% above base. Which is the same as the best trackers available today.

I'm happy with my existing deal also, and I wont be changing it - thanks.
Full details below

Thrugelmir

Harry_Powell wrote: »

I think you've fallen for Labour spin here, Graham. Low interest rates are primarily to help the banks rebuild their balance sheets. The fact that some people were lucky enough to have low tracker rates is neither here nor there. The sort of people who are likely to need protection from repossession are the ones who have a crap LTV and these will generally not be on the receiving end of low BoE rate benefits.

The evidence is that the government has done nothing but rattle a sabre at banks that have high SVR's. If they really lowered rates to help people, rather than to help the banks, they would lower SVR mortgage rates on the 'state' banks, forcing the non-state banks to do the same.

Pop into the DFW and ask these guys what their mortgage rates are, you'll find 6%+ for most.

Good point HP. Too easy to forget that many stretched themselves financially to gain a foot hold on the housing ladder. Unlike previous decades, there's no high wage inflation to take away the pain of the repayments. Many must feel like hamsters on a treadwheel........

At what point will peoples resolve give way?

Thrugelmir

Graham_Devon wrote: »

But has saved shed loads of people from the loss of their homes. 5 million plus have more to spend, and in some cases, hundreds more to spend each month.

While losing hard earnt builtup capital. Many people traded up the markets during the boom years. Yes, I'm sitting on .35% above base life time tracker. Am I richer no. As have suffered a capital loss of around £30k currently.

SteveV2

I have a woolwich tracker. Liked the idea of offseting savings etc.

Not sure on the % but the interest on £49000 is £33.** a month. The payments are the same as we didn't change a thing. £436.98. We have a good chunk offsetting which is slowly being used in overpayments. The interest decrease has effectivly knocked about 7 years off my mortgage. Just over £36000 saved long run.

I bought in 2002

Pobby

Yes, clearly the banks should be rebuilding their capital very nicely. Most folk I know with mortgages are paying well over the base rate. I have mentioned my nephew with his £175k mortgage, or there abouts, paying a grand a month over, ahem, 44 years!

On the other hand there are folk who have some decent savings getting diddly squat in interest. Even at 5% boe, I would be very pleased with the interest returns, just letting them stack up.

I wonder if Gordie realises that the grey vote is very important to him. Older people are quite likely to vote. Will they vote his way?

tomterm8

Graham_Devon wrote: »

Have we lost control of effective use of interest rates?

Yes, but for exactly the opposit reason than you think. We've lost control of interest rates because, by the taylor rule the bank of england uses, we should have had interest rates of -6% for the last year. Whereas, effective interest rates are around 6%, as you say.There is no reason, at the moment, for base rates to rise. We've got to recover, and then remove a lot of the QE money first. By the time the economy is doing well enough to require a rates rise, a lot of the fragility you are talking about won't exist any more.

Harry_Powell

Thrugelmir wrote: »

Good point HP. Too easy to forget that many stretched themselves financially to gain a foot hold on the housing ladder. Unlike previous decades, there's no high wage inflation to take away the pain of the repayments. Many must feel like hamsters on a treadwheel........

At what point will peoples resolve give way?

I'm not sure they will, unless their financial situation becomes so dire that they forceable have their houses taken from them. There is still a mania for home ownership in the UK and a pressure to 'put a stable roof over your kids heads'. From what I've seen on the news and read on forums, people are willing to go without meals in order to make sure they repay the mortgage. Madness I know, but then without that madness we wouldn't have had 300% HPI.

Thrugelmir

Harry_Powell wrote: »

I'm not sure they will, unless their financial situation becomes so dire that they forceable have their houses taken from them. There is still a mania for home ownership in the UK and a pressure to 'put a stable roof over your kids heads'. From what I've seen on the news and read on forums, people are willing to go without meals in order to make sure they repay the mortgage. Madness I know, but then without that madness we wouldn't have had 300% HPI.

House ownership though is generational. The next generation may have other ideas. One of my nephews works and lectures in London. No way can afford to buy. So has bought a flat in Berlin instead.

purch

effective interest rates are around 6%, as you say.There is no reason, at the moment, for base rates to rise

Not only is the effect of the Base Rate overrated, it's also exaggerated hugely by the media.

As a headline it's great, but the Bank of England Bank has far more effect and control over Interest Rates, both in the wholesale and retail markets, from it's normal market activities and inteventions that it does with minor adjustments to Base Rate.

The current steepness of the Yield Curve would indicate that either Base Rate should be higher, or longer term rates lower.

Neither is going to happen soon, so we will continue with a situation where the curve is overly steep, and market participants have an unusual ability to profit from the anomoly.

Back to the OP, I don't think we have lost control of effective use of the BOE base rate because the Bank didn't have much control over market rates by altering the Base Rate anyway.

However, with each passing month that the current situation continues, the credibility of the Bank, and their ability to make effective use of the Headline Rate as a policy indicator diminishes.