MSE News: Mortgage misery as Halifax and RBS raise standard rates

MarkyMarkD

That's more like it.

Plenty of notice so anyone who reckons it's bad value can remortgage to a cheaper deal elsewhere.

Or if it's not actually bad value at all, they won't be able to remortgage more cheaply.

Simples.

betmunch

Selden wrote: »

All this demonstrates is that you don't have a clue about current conditions in the UK mortgage market.

I thought he made a good point to be fair.

Whats your angle on it?

Thrugelmir

Selden wrote: »

1. Which regulatory requirements do you have in mind?
2. What additional capital do these regulatory requirements currently require the UK banking sector to hold?

Basle 3. That's enough for the banks to digest.

MarkyMarkD

As, Selden, you don't seem to understand the difference between capital and liquidity, I think I'll have to agree that we are unlikely to have a productive debate.

But just to aid you and others reading this thread:

capital is the buffer that banks have, mainly of shareholder funds (but also including some forms of very long-term debt) to ensure that they are able to absorb losses whilst still repaying their depositors.

liquidity is the "spare cash" that banks have, in order to meet the requirements of depositors to withdraw their funds.

Things like the Special Liquidity Scheme (about to reverse, leading to a substantial removal of liquidity from the banking sector) and the Asset Purchase Facility provide liquidity, not capital.

There are only two ways in which banks can build up their capital:

(1) issuing more shares or long-term debt; or
(2) making profit.

As (1) is pretty difficult - and dilutive to existing bank shareholders, because banks would issue shares at historically low prices, and well-nigh impossible for building societies - (2) is the realistic way to increase capital.

Hence the increases in SVRs.

And, as Thrugelmir kindly points out, Basel capital requirements have led to progressive increases in the amounts of capital banks and building societies must hold - which has two effects:

(1) they need more capital, just to stand still - or they can alternatively reduce their lending, to avoid needing capital to stand still; and
(2) they need to make higher margins, per £ they lend, in order to achieve the same % return on capital.

Both of the above lead to a need to charge higher rates on lending, above cost of funds.

Thrugelmir

I would add

3) Many lenders took excess risk in terms of their mortgage books during the credit boom. HBOS being one. So they will be lending less overall in order to bring their ratios back into an acceptable risk management profile.