Resentment against SVR hikes grows, Economists call for BOE to drop rates to 0%

HAMISH_MCTAVISH

On the third anniversary, economists are now beginning to question whether the Bank should be setting a new record again – by cutting rates right down to zero.

As recently as August last year, the subject was discussed by Bank policymakers but dismissed on grounds that the effect on banks’ funding costs would be limited and the hit on profits made from customer deposits might even potentially reduce lending levels.

With mortgage lenders raising their standard variable rates, though, the topic has gone live once again. In the past week, Halifax and NatWest have raised their rates by as much as half a percentage point. Bristol & West, owned by Bank of Ireland, went even further – hiking its default mortgage rate by 50pc to 4.5pc.

The resulting increase in borrowing costs for households threatens to jeopardise the consumer recovery that had begun to emerge.

Coupled with rising oil prices, the effect on disposable incomes could undo all the benefits of falling inflation.

Jim Leaviss, of M&G Investments, reckons there is a simple solution to take some of the pressure off households. Cut rates. “I disagree that there would be no benefit in a Bank rate cut,” he said. “If the Bank of England cuts rates to near zero many of the funding costs that directly impact [Halifax owner] HBOS, including Libor and 5-year interest rate swap rates would also fall.

“The impact will of course be relatively small as we reach the “zero bound”, but it is probably more certain in its effectiveness than a theoretically equivalent amount of Quantitative Easing.”

The Bank’s 0.5pc cut-off point seems rather arbitrary. Central banks in Japan and Switzerland have cut the official rate to zero, and in the US the Federal Reserve has going as low as it can go – a band from 0pc to 0.25pc. Their actions demonstrate that there is no economic dogma that prohibits lower rates.

And, if Leaviss is right, a rate cut would relieve pressure on households. Some 71pc of households are on variable rate mortgages, many of which will be linked to Bank base rate.

Inter-bank lending rates, which are impacted by Bank rate decisions, form the foundations of overall market funding rates.

Three years down the line, perhaps it’s time to think again.

http://blogs.telegraph.co.uk/finance/philipaldrick/100015452/isnt-it-time-the-bank-cut-interest-rates-to-zero/

Well well well....

It seems the banks may have over-reached themselves this time.

This is going to get interesting.

Emy1501

Nah the banks are doing us all a favour by putting up these rates slowly. Better than a massive shock in 5 years or so which puts back to square one.

Also as few SVRs are linked to base rate now it will make little difference.

Also find it strange that there was no problem with mortgage market in uk according to some at peak but now when SVRs are roughly half what they were people cant cope.

Boe predicted the increase cost of mortgage borrowing 2 years ago so their recovery stragergies will include these effects.

HAMISH_MCTAVISH

Emy1501 wrote: »

Nah the banks are doing us all a favour by putting up these rates slowly. Better than a massive shock in 5 years or so which puts back to square one.

"Nah" the banks are jeapordising the prospect of any economic recovery at all by prematurely raising rates.

By unilaterally raising rates now and reducing liquidity in the economy, they risk driving the nation into a long term depression where base rates may be forced to stay at near zero for decades.

Good for people like me with base rate linked products, but bad for the wider economy.

Also as few SVRs are linked to base rate now it will make little difference.

Also find it strange that there was no problem with mortgage market in uk according to some at peak but now when SVRs are roughly half what they were people cant cope.

Boe predicted the increase cost of mortgage borrowing 2 years ago so their recovery stragergies will include these effects.

As always, you completely miss the point.

The BOE has set base rates where they are for one reason, and one reason only.

To increase liquidity within the economy.

If banks arbitrarily raise the rates they charge consumers on the products that are not linked to base rate, then they are undermining BOE policy and jeapordising the economic recovery.

In that circumstance, the logical choice for the BOE to make to restore the liquidity levels they feel are required within the economy is to further reduce base rates, thus impacting all bank products which are still linked to base rate and compensating for the rises elsewhere.

Emy1501

HAMISH_MCTAVISH wrote: »

"Nah" the banks are jeapordising the prospect of any economic recovery at all by prematurely raising rates.

By unilaterally raising rates now and reducing liquidity in the economy, they risk driving the nation into a long term depression where base rates may be forced to stay at near zero for decades.

Good for people like me with base rate linked products, but bad for the wider economy.



As always, you completely miss the point.

The BOE has set base rates where they are for one reason, and one reason only.

To increase liquidity within the economy.

If banks arbitrarily raise the rates they charge consumers on the products that are not linked to base rate, then they are undermining BOE policy and jeapordising the economic recovery.

In that circumstance, the logical choice for the BOE to make to restore the liquidity levels they feel are required within the economy is to further reduce base rates, thus impacting all bank products which are still linked to base rate and compensating for the rises elsewhere.

It not me who is missing the point.

The BOE have been fully aware these rate rises were coming for 2 years now and therefore they should and would have accounted for these SVR rises. Few SVRs are linked to base rate now so the BOE impact on the mortgage will be limited by a rate cut.

These rate rises are affecting less than 2m people by only in many cases a few 100 pound. You really want to tell me this will cause a depression!

I suspect as always you more worried about house prices than wider economy.

HAMISH_MCTAVISH

Emy1501 wrote: »

The BOE have been fully aware these rate rises were coming for 2 years now and therefore they should and would have accounted for these SVR rises.

What an astounding claim.

Are you really trying to say that the BOE was aware, two years in advance, that banks would raise their SVR rates before the BOE raised base rates?

Source? Link? Evidence?

Few SVRs are linked to base rate now so the BOE impact on the mortgage will be limited by a rate cut.

False.

Most mortgages are still linked to the BOE base rate, either through tracker products or BOE linked SVR-s.

Cutting rates to 0% would more than counter the recent SVR raises in liquidity terms, as more mortgages are linked to base rate than are not..

These rate rises are affecting less than 2m people by only in many cases a few 100 pound. You really want to tell me this will cause a depression!

I suspect as always you more worried about house prices than wider economy.

Oh do make your mind up....

In your first assertion you claim the owners of 92% of houses won't be impacted by these rate rises, and in your second assertion you imply that house prices will be impacted.

Which is it?

Oh, and while you're thinking that one through, what makes you think that the economy is strong enough to have billions of pounds a year of liquidity withdrawn? If the BOE thought that, they'd just raise rates....

DervProf

HAMISH_MCTAVISH wrote: »

"Nah" the banks are jeapordising the prospect of any economic recovery at all by prematurely raising rates.

According to Mister Ree, the recovery has already happened.

And even if it hasn't, I wouldn't mind betting that you'll object to any rise in rates no matter how the economy is doing.

ILW

Just heard you can now get 3.5% on instant access savings and over 4 on tie ins.

HAMISH_MCTAVISH

DervProf wrote: »

According to Mister Ree, the recovery has already happened.

Mr Ree is a troll who likes to make idiotic statements. Why would you bother quoting him, unless you were trolling yourself?

And even if it hasn't, I wouldn't mind betting that you'll object to any rise in rates no matter how the economy is doing.

I have absolutely no objection to base rates rising when we have a strong and sustainable economic recovery.

When something more closely resembling normal lending has resumed, when the money supply starts increasing, and then the consequent growth in GDP and employment feed through then base rates should rise back to more normal levels.

That would be proper and right.

Unsurprisingly, I do object to base rates rising prematurely and choking off economic growth. And I feel little but contempt for those who think it's a good idea to scupper the wider economy just so they can buy a cheaper house.

Emy1501

HAMISH_MCTAVISH wrote: »

What an astounding claim.

Are you really trying to say that the BOE was aware, two years in advance, that banks would raise their SVR rates before the BOE raised base rates?

Source? Link? Evidence?




False.

Most mortgages are still linked to the BOE base rate, either through tracker products or BOE linked SVR-s.

Cutting rates to 0% would more than counter the recent SVR raises in liquidity terms, as more mortgages are linked to base rate than are not..




Oh do make your mind up....

In your first assertion you claim the owners of 92% of houses won't be impacted by these rate rises, and in your second assertion you imply that house prices will be impacted.

Which is it?

Oh, and while you're thinking that one through, what makes you think that the economy is strong enough to have billions of pounds a year of liquidity withdrawn? If the BOE thought that, they'd just raise rates....

I dont need to find a link the BOE have always mortgage costs would get higher as the end SLS grew closer.

I have never said house prices will be impacted by these tiny rate rises. I also never said 92% of people would not be affected.

I said few SVRs are linked to the base rate probably NW and C&G being the only ones.

What I find strange is I have never heard you complaining about families who have lost their child tax credit, public sector workers losing out on pay rises etc. all of these have more effect on stimulating the economy than the limited effect of what you are complaining about.

Remember a lot of these lenders are state or partially state owned

HAMISH_MCTAVISH

Emy1501 wrote: »

I dont need to find a link the BOE have always mortgage costs would get higher as the end SLS grew closer.

You made the assertion, either you can prove it or not.

Post the link.

I have never said house prices will be impacted by these tiny rate rises. I also never said 92% of people would not be affected.

Oh right then....

So we agree these rate rises won't impact house prices.

Good to know.

I said few SVRs are linked to the base rate probably NW and C&G being the only ones.

But the majority of mortgages are. So lowering rates to zero would indeed have an impact on liquidity.

ILW

Is it not the case that companies making increased profits would help get the economy back to normal? Surely this applies to banks.