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MSE News: Mortgage blow as building society hikes SVR

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  • dasilva_2
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    Noble Savage. What is a normal rate?
    The average rate over the last 10 months has been 0.5%.
    Fairly stable at 0.5% or am i missing something?
  • beecher2
    beecher2 Posts: 3,677 Forumite
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    dasilva wrote: »
    So where does the 2.7% come from?
    It is just an arbitrary figure not quoted by them at any time before.
    Is it in their mortgage contract?
    I am not saying they are right or wrong in putting up their rate, I am saying they are not stating the correct reasons for their decision. I would have thought they would at least be correct in their statements.

    The longer base rates are held artificially low, the more exceptional the circumstances become. As the ratio between saving and lending becomes more distorted, the more building societies become under pressure, and the business model they've used eventually breaks. Of course what we're seeing is exceptional, and Skipton will have been unable to carry on as before.
  • beecher2
    beecher2 Posts: 3,677 Forumite
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    dasilva wrote: »
    Noble Savage. What is a normal rate?
    The average rate over the last 10 months has been 0.5%.
    Fairly stable at 0.5% or am i missing something?

    I don't mean to sound patronising, but I think you should do some research on basic economics, and economic history.
  • poppy10_2
    poppy10_2 Posts: 6,576 Forumite
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    You may wish to look at May 1988 to October 1989 here.

    7.38% to 14.88% under a Tory Government.
    And wasn't that followed by a major housing crash and a wave of repossessions?
    poppy10
  • dasilva_2
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    beecher2. I totally agree with you that having interest rates at 0.5% for so long is exceptional. I think you are missing my point.
    The board of directors defined exceptional as 'having a base rate of less than 2.7%'
    That happened in 2008 so why now do they class it as exceptional? its 2010.
    That is my only point.
  • dasilva_2
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    beecher2 wrote: »
    I don't mean to sound patronising, but I think you should do some research on basic economics, and economic history.

    Forgive me. Is the statement wrong?
    (and by the way it sounds patronising to me)
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    dasilva wrote: »
    Noble Savage.
    Have you looked at their website. Their definition of exceptional circumstances is 'BOE rate is less than 2.7%' No mention of for how long, no mention of where 2.7% has come from, nothing. Just that BOE rates are less than 2.7%. This has according to their website been 'recently defined by their board of directors as being exceptional'
    Had their board of directors defined exceptional as being 'less than 2.7% for in excess of 12 months' I would have no argument.
    What I am saying is that to define a rate of 2.7% or less as being exceptional when it has been for 14 months is the wrong reason as it is no longer exceptional. It is the norm and has been for 14 months.

    As a financial institution the Board of Directors are duty bound by FSA regulations to conduct the business of the BS in a proper manner, ie maintain its solvency. So they set the benchmark that the BS is able to operate in a profitable manner.

    The Board of Directors no doubt made a decision to hold rates , in the expectancy that it would be a short term measure. With a low BOE base rate forecast for a while longer and the ending of QE being pumped into the major banks, which is just finishing. These are exceptional.

    Had the BS acted earlier then it would have been accused of profiteering. No doubt it probably has used reserves in attempt to maintain its position. The lack of funding to support total mortgage borrowing is rapidly becoming exposed.
  • Noble_Savage
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    Looking at the average rate over 10 months won't really do anything for you. Go over 10 years - which is more reasonable given that we're talking about mortgages - and I reckon you'd be looking at somewhere around 5.00%. And that's including almost a year at 0.50%, which would have dragged the average down a bit.
  • dasilva_2
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    Looking at the average rate over 10 months won't really do anything for you. Go over 10 years - which is more reasonable given that we're talking about mortgages - and I reckon you'd be looking at somewhere around 5.00%.

    So the normal rate is 5% then?
  • Noble_Savage
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    dasilva wrote: »
    So the normal rate is 5% then?

    No. That's not what I said. An average for the Bank of England Base Rate over the last ten years would probably be somewhere around that figure.

    I'm not getting into what is 'normal' and 'exceptional' as I think we're rapidly entering the realm of semantics. What I was trying to do was put prolonged sub-1.00% rates into some form of context.
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