How many more banks will follow?

chucky

HammerSmashedFace wrote: »

I think the bottom line is IR's can never be any lower on average than they have been for the last 12 months or so. And considering nothing ever remains static in an economy, it is inevitable that rates will rise.

Hoodwinking the general public into borrowing large amounts of money for 25 years on the back of low rates that in no way can be sustained over anything like that period of time, whilst wages are inevitably going to see low rises or none at all, has been irresponible in the extreme, and at some point not to far into the future, this folly will be exposed.

that's all very nice but what's that got to do with the way a building society lending model is built on?

maybe it's just the case that the building society model isn't robust enough any more in a less favourable economic climate...

HAMISH_MCTAVISH

mr_fishbulb wrote: »

I wish you would stop spouting this like it is a god-given fact.

This is a quote from the article in your original post about it:
"Morgan Stanley said" = an opinion.
"may" = not certain.
"2.5pc or 3pc" = it's a guess at a range, not a calculated & undeniable figure.

Well the BoE has also said that rates of 4.5% today would have the same demand destruction effects of double digit rates in the past. So a neutrality point of 2.5% or 3% matches that very well.

Call me eccentric, but I think the BoE and Morgan Stanley have vastly more expertise, experience and credibility than a bunch of armchair economists on MSE.

Spartacus_Mills

HAMISH_MCTAVISH wrote: »

None, I'd imagine, as the Skipton is not a bank, it's a building society.

LOL

And you berate others for being pedantic.

You know what he meant.

Thrugelmir

HAMISH_MCTAVISH wrote: »

The building society model is broken, they rely on depositors accounts, and they can't compete with NS&I, let alone the banks. The wholesale markets are closed to all but the biggest and safest. Thats the real problem here.

Far from it. Logically borrowers with sufficent equity will be able to remortgage with other lenders. Those unable to do so will remain with the Building Society. By this means the BS will be able to a) remain Profitable b) Have sufficent funds to fund its lending book c) Attract savers with good savings rates.

Whilst other lenders will be happy to take remortgages onto their books. The effects of c) will gradually effect them. As deposits flow elsewhere.

There is a long unwinding process to go through. As the different mortgage deals of the past mature.

The BS that I have my lifetime tracker with. Now offers the same product at 2.99% above base. The interest floor for the mortgage has also been set at 3.49%. An indication of future lending trends.

HAMISH_MCTAVISH

Spartacus_Mills wrote: »

LOL

And you berate others for being pedantic.

You know what he meant.

It's an important differentiation. It is the building society model that the articles address as being "broken".

HAMISH_MCTAVISH

Thrugelmir wrote: »

Far from it. Logically borrowers with sufficent equity will be able to remortgage with other lenders. Those unable to do so will remain with the Building Society. By this means the BS will be able to a) remain Profitable b) Have sufficent funds to fund its lending book c) Attract savers with good savings rates.

Whilst other lenders will be happy to take remortgages onto their books. The effects of c) will gradually effect them. As deposits flow elsewhere.

There is a long unwinding process to go through. As the different mortgage deals of the past mature.

The BS that I have my lifetime tracker with. Now offers the same product at 2.99% above base. The interest floor for the mortgage has also been set at 3.49%. An indication of future lending trends.

I disagree.....

It is the beginning of a death spiral for these small B.S. In order to issue higher returns to savers, you need to have a base of borrowers large enough to do so. Banks and building societies make money by charging a differential between the rates they give to ssavers, and the rates they offer to borrowers. They make money from borrowers, they spend money to attract savers.

Borrowers are the life blood of financial institiutions. By chasing away most of their mortgage book, and p1ssing off their borrowers, most of whom will also be savers with them, they will be in deep trouble in the future.

The wholesale markets are already re-opening for the big boys. This trend will continue, and enlarge. Increased competition will drive down mortgage margins, and any institution which relies on paying high returns for it's deposit base will be unable to compete with the larger lenders for borrowers. And with no borrowers, they have no income to pay the returns to savers, and will go the way of the dodo and dinosaur.

Small building societies, without access to the wholesale markets, are dead men walking. They just don't know it yet.

hallmark

Horrible news for borrowers, great news for savers (or those waiting for house prices to fall perhaps). If a few more follow suit this is a major sea-change in policy. Fairly obvious that Gordon Brown has been exerting pressure behind the scenes to stop banks / BSs doing this but looks like Skipton has broken ranks.

kennyboy66_2

>Prays that the Nationwide does not follow suit, when I finally come of a fixed rate in October <

mr_fishbulb

HAMISH_MCTAVISH wrote: »

Call me eccentric, but I think the BoE and Morgan Stanley have vastly more expertise, experience and credibility than a bunch of armchair economists on MSE.

I'm not saying they don't and I'm not even suggesting another figure. I'm just saying it is not a fact, merely an opinion.

Thrugelmir

HAMISH_MCTAVISH wrote: »

I disagree.....

It is the beginning of a death spiral for these small B.S. In order to issue higher returns to savers, you need to have a base of borrowers large enough to do so. Banks and building societies make money by charging a differential between the rates they give to ssavers, and the rates they offer to borrowers. They make money from borrowers, they spend money to attract savers.

Borrowers are the life blood of financial institiutions. By chasing away most of their mortgage book, and p1ssing off their borrowers, most of whom will also be savers with them, they will be in deep trouble in the future.

The wholesale markets are already re-opening for the big boys. This trend will continue, and enlarge. Increased competition will drive down mortgage margins, and any institution which relies on paying high returns for it's deposit base will be unable to compete with the larger lenders for borrowers. And with no borrowers, they have no income to pay the returns to savers, and will go the way of the dodo and dinosaur.

Small building societies, without access to the wholesale markets, are dead men walking. They just don't know it yet.

Building societies are built on savers not borrowers. Potentially it will be the banks that lose out in the longer term. Any sensible saver would have moved their savings elsewhere already which is the root of the problem for the BS. Lack of funding to support lending.

You've overlooked the fact £185 billion is currently parked with the Treasury under the Special Lquidity Scheme. Wholesale markets are far from normal. This money has to be refinanced in 2011.

So while the Banks are benefiting at the moment. As they are able to offer very competitive rates, there are no guarantees into the future.