Interest Rates

DavB93

How do you work out those figures...???

TangentMan

The_Tax_Mans_Cash_Machine wrote:

Considering that most of the banks have been wittering on recentlly about losing money through bad debt, I wouldn't be surprised to see them try & claw some money back by passing on at least the full amount, & maybe a bit more.

Of course the irony is that the problem of bad debt has come from their lax lending policies, & the more they cane the customers now, the more defaulters there will be.

I think thats caused a vicious circle. Serves them right.

Actually, the problem of bad debt has come about because people are unable to pay debt and, increasingly, unwilling to save and "want it now" getting loans at high income levels and LTVs. Banks are closely regulated as to both what they tell the borrower and what they ask of the borrower.
Yes, there will have been some bad lending, but mostly there is bad borrowing.

You only have to look on here to see threads such as "how much can i borrow?". When it is "how much can i afford" that matters.

F_T_Buyer

DavB93 wrote:

How do you work out those figures...???

I assume that question is to me?

On the graph:

http://members.cox.net/dmrc/InterestRates/UK_Rates.htm

you have the interest rate on the left. So looking at the graph, if a bank was to borrow money which needed to be repaid in June 2007 it would cost 5%, so for every £100 the bank borrows they would pay back £105 per year.

This means a fixed rate to June 07 would cost the bank 5%, they then would add the market to sell to the public, which is around 0.01% - 0.5% (very very low due to their lax lending).

If you were going for a 2 yr fixed it would cost the bank around 5.1% to 5.2%. This is based on swap rates as at 15/07/06. These swap rates change daily, and a two year fixed today would cost 5.14%.

Remember they are lots of other factors, such as banks make money from selling insurance, fees, etc etc. Also, they will buy the money in bulk, as they know they will sell x amount that month.

Also, remember those swap rates will never be mentioned in the media. They are probably the most accurate predictor. At the start of the year everyone was saying rates will go down, but the markets disagreed (they showed a flat yield). Just like now everyone was saying it was a shock rise, but the markets had priced in an increase around now for several months.

I also expect swap rates to go much higher over the next year.

The_Tax_Mans_Cash_Machine

TangentMan wrote:

Actually, the problem of bad debt has come about because people are unable to pay debt and, increasingly, unwilling to save and "want it now" getting loans at high income levels and LTVs. Banks are closely regulated as to both what they tell the borrower and what they ask of the borrower.
Yes, there will have been some bad lending, but mostly there is bad borrowing.

You only have to look on here to see threads such as "how much can i borrow?". When it is "how much can i afford" that matters.

I agree that bad borrowing is a factor of the have it now society that we've created, but the banks, egg, alliance&L, Llloyds, etc, have all come out in the last few days saying that they have had to increase their bad debt provision as a result of their more relaxed lending procedures. They have basically (& its in their reports) been willing to lend more money to people in general, & have been actively targetting people who are a bigger risk. They have now tightened their lending criteria, aiming for "more creditworthy" customers.

The increase in money supply in the UK (14% per annum) clearly shows that more & more money is being pumped out in loans, & that is down to bad lending practise - particularly with huge salary multiple mortgages, encouraging MEWing, & the easy availability of other unsecured debt to practically anyone - see the DFW board for some truly remarkable levels of debt/income, which in the past simply would not have been allowed.

richiethekid

I suppose it's another vicious circle though - house prices increase so mortgage lenders have to relax their lending policies, otherwise they'd be turning down most applicants. But this in turn drives the prices up even further. Ever noticed that mortgage lenders always predict that the market will continue to rise when independent observers predict the opposite? Funny that.

movieman

house prices increase so mortgage lenders have to relax their lending policies, otherwise they'd be turning down most applicants.

And then as soon as the bad debts start piling up, they pull right back on the lending policies, making the crash even larger as few people can borrow enough money to buy...

I was reading a newspaper story claiming that bad debts are up by 50% compared to last year: this rate rise will only make it worse.

F_T_Buyer

F_T_Buyer wrote:

This is based on swap rates as at 15/07/06. These swap rates change daily, and a two year fixed today would cost 5.14%.

I'll just correct myself:

As of 5pm today, a fixed rate would cost 5.30%.

Markets are expecting a few more increases yet!

HelpWhereIcan

I know I'm being fatuous and flippant, but I am not sure that I'll be filing for bankruptcy or desperate to sell just cos my mortgage has gone up by about £30 pm today.

I agree with F_T_Buyer when they say that swap rates are a good indication of what may happen to rates in the future.

I find it interesting to note that s/he expects them to increase over the next 12 months. I have also seen those that say they expect them to level out now with a fall likely in Q3/4 in 2007.

Most people agree that swap rate movements are not that massive at the moment, ie they are fairly stable, as is LIBOR - so all may not be lost just yet.

http://www.clpuk.com/


Strangely enough have just had an email from Nationwide giving the following:

"While temperatures soared on the streets, house price growth remained fairly comfortable in July. After three months of broadly flat growth, house prices increased by 0.8% in July. Annual house price growth is now 5.9%, more than double the rate of growth seen this time last year when prices were increasing at an annual rate of only 2.6%. However, the strong rate of annual house price growth reflects the weak patch in prices this time last year. The three monthly rate of growth has picked up slightly compared with last month, but remains on a fairly benign trend. The price of a typical house in the UK is now £167,733, which is £9,385 more than at the same time last year.“


Let's not panic here, one rate rise will not kill us all. It's the 27 consecutive monthly rises from October that we have to worry about!!

nmiah786

HelpWhereIcan wrote:

............It's the 27 consecutive monthly rises from October that we have to worry about!!

Hope not, well at least not 27 consecutive ones......:eek:

Ethanol

This has got me worried.

On July 21 I made an application to RBS for a five-year fixed-rate mortgage. The application process is ongoing. Am I still likely to get the rate which I applied for?