Interest Rates

TangentMan

The_Tax_Mans_Cash_Machine wrote:

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.

Debt is not bad. Even high debt is not bad if you are comfortable with the consequences. People still have a responsibility to take on only the debt they can repay, regardless of what is on offer. My credit limit on my credit card is ridiculously high. I saw a nice car as i walked past a showroom. I could just put in on my CC. But strangly i haven't done that yet.

TangentMan

Ethanol wrote:

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?

Fixed rates work like this. The money is purchased by the lender on the open market ("Swap rates"). They buy the cash, add a bit of amrgin to cover costs and some profit and then sell it on to the customer at a rate (and typically an product fee of some kind). They buy the money over a fixed period. So for a 5 year fixed rate it will actually be fixed up to a certain date (i.e. 1/9/2011) rather than 60 months from when your loan starts.

Thus the lender will have say £10m on a particular rate. As the money is sold to the customer that "fund" comes down. Once that fund gets low (or if the swap rates change more than their hedging has allowed for) the lender will withdraw the product.

Normally, if you have had an application accepted it is already allocated out of the fund and hence you will get the rate. Especially if you have received an offer.

As you can see, nothing directly related to the BofE Repo rate.

I hope this helps, it might also help to explain why people get charged product fees when "all they are doing is swapping a rate on an existing account". Because there is quite a lot to it in the background.

Ethanol

Thanks a lot TangentMan - that is very helpful.

The arrangement fee will be added onto the mortgage, so technically we haven't paid that yet. They took the valuation fees off my credit card on Monday so I'm hoping that by doing this they have implied a mortgage offer (based on a successful valuation).

dmrc

I have noticed that a number of members of this forum are interested in the interest rates forecasts.
My research has just been updated:

http://members.cox.net/dmrc/Projected_Rates.htm

Enjoy...

F_T_Buyer

dmrc wrote:

I have noticed that a number of members of this forum are interested in the interest rates forecasts.
My research has just been updated:

http://members.cox.net/dmrc/Projected_Rates.htm

Enjoy...

Ah, your website is it? Nice work. I've been quoting it on here.

How often is this updated? Also, would it be possible to bump this post when updated? Some members would probably benefit from this.

PoorDave

dmrc wrote:

I have noticed that a number of members of this forum are interested in the interest rates forecasts.
My research has just been updated:

http://members.cox.net/dmrc/Projected_Rates.htm

Enjoy...

Interesting.

What is your research based on?

fridaypassion

Is the concensus then that rates will continue to rise then? We are just looking at remorgaging and cant decide between at 2 or 5 year fixed term

F_T_Buyer

fridaypassion wrote:

Is the concensus then that rates will continue to rise then? We are just looking at remorgaging and cant decide between at 2 or 5 year fixed term

Yes. But when? Who knows.

TangentMan

movieman wrote:

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.

Yes, but actual defaulting is very low and, i believe at an all time low. So from a small base any increase looks large.

tonydee

Have any lenders followed suit yet ?