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

HAMISH_MCTAVISH

Generali wrote: »

Cutting base rates will make no difference IMO.

Cutting rates would increase liquidity within the economy from the majority of mortgage holders on BOE linked products, and offset the damage to liquidity done by the current raising of non-linked SVR products.

The problem is, 5 of the top 10 mortgage lenders from previous years are now nationalized and competition has been destroyed by the crazy decision to allow HBOS and Lloyd's to merge.

Agreed.

There are 2 ways to get interest rates down in the market: create more competition or intervene directly to mandate mortgage rates. The former would involve breaking up the big banks which is very hard to do. The latter would be idiotic IMO. Governments setting prices rarely works out well.

There is a third way.

-Encourage new entrants to the market by abandoning BASLE 3 requirements on capital adequacy and instead adopting contracyclical capital reserve requirements for retail banking (inevitable anyway at some point)

-Impose hard lending targets of 100K mortgages a month by including mortgage lending within the remit of 'project merlin'

-Instruct the BOE to include MBS as assets to be purchased in the next round of QE, much as the ECB and RBA have done with some success.

Generali

HAMISH_MCTAVISH wrote: »

Cutting rates would increase liquidity within the economy from the majority of mortgage holders on BOE linked products, and offset the damage to liquidity done by the current raising of non-linked SVR products.



Agreed.



There is a third way.

-Encourage new entrants to the market by abandoning BASLE 3 requirements on capital adequacy and instead adopting contracyclical capital reserve requirements for retail banking (inevitable anyway at some point)

-Impose hard lending targets of 100K mortgages a month by including mortgage lending within the remit of 'project merlin'

-Instruct the BOE to include MBS as assets to be purchased in the next round of QE, much as the ECB and RBA have done with some success.

Liquidity isn't a problem. The BoE has injected cash worth about 30% of GDP into the banking system and have made it perfectly clear that more can be made available.

What would be the mechanism to ensure banks wrote the appropriate number of mortgages? Don't forget that a big or perhaps the biggest part of the current mess is people being lent money they can't repay. If lending targets are imposed then banks may be forced to lend to people that they believe to be a bad risk.

Your final idea is to turn base metal (at best) into gold. If the ECB was doing so well then presumably Greece wouldn't be in the papers so much!

chucknorris

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.

You've got a very strange way of looking at things. So you would prefer your mortgage rate to be increased by 0.5% per annum for 5 years rather than continue to pay the same rate for 5 years and then have it increased after 5 years?

My mortgage costs would be 45k higher if I elected for your preferred way.

Emy1501

chucknorris wrote: »

You've got a very strange way of looking at things. So you would prefer your mortgage rate to be increased by 0.5% per annum for 5 years rather than continue to pay the same rate for 5 years and then have it increased after 5 years?

My mortgage costs would be 45k higher if I elected for your preferred way.

It not about me though. Some of these people on SVRs are on them because no other lender will touch them. If in 5 years rates are put up say 2.5% in one year because the economy has recovered some of these people will struggle to pay end up repossessed and probably cause another crash.

The fact that people seem to struggling to find around £700 a year in some cases shows where we are. These people would never be able to find the extra £300 a month if the rate rises were to all happen in one go.

The longer those struggling are left on low rates more they start to believe that they never have to pay higher rates again and the problem will come when they have to. People are starting to believe that rates will never go back up.

chucknorris

Emy1501 wrote: »

If in 5 years rates are put up say 2.5% in one year because the economy has recovered some of these people will struggle to pay end up repossessed and probably cause another crash.

That is totally illogical if they can't pay 2.5% more in 5 years time how can they pay 2.5% more in 5 years time with the rate going up 0.5% per annum :rotfl:

There will be some who could manage the former but not the latter scenario so your system would result in more repossessions.

Also that additional mortgage cost would for some otherwise be spent and stimulate the economy further and therefore aid the recovery.

Emy1501

chucknorris wrote: »

That is totally illogical if they can't pay 2.5% more in 5 years time how can they pay 2.5% more in 5 years time with the rate going up 0.5% per annum :rotfl:

There will be some who could manage the former but not the latter scenario so your system would result in more repossessions.

Also that additional mortgage cost would for some otherwise be spent and stimulate the economy further and therefore aid the recovery.

It much easier to cut your outgoings over a number or years rather than in one year. I know people who were struggling in 2007 who when cuts came rather than paying down debt bought a new car. The people on SVRs who can't move make up a small part of the economy. Other people affected by these rate rises will simply change lender therefore the stimulating of the economy will be limited. When rate rise there will no real need to raise SVRs for these people as SVRs for these people are not linked to base rates as we now know.

chucknorris

Emy1501 wrote: »

It much easier to cut your outgoings over a number or years rather than in one year.

That's your response :rotfl: That it's better to pay an extra 0.5% every year to give you time to cut down on your outgoings?

I hope your wife controls the purse strings in your household for the sake of your family's finances.

HAMISH_MCTAVISH

Generali wrote: »

Liquidity isn't a problem. The BoE has injected cash worth about 30% of GDP into the banking system and have made it perfectly clear that more can be made available.

Liquidity IS a problem.

The money supply has been falling despite QE in Q4, which can only be because the bank are not buying the right types of assets.

When you inject liquidity into the banking system, and it never makes it out the other end into the economy, you have a problem.

What would be the mechanism to ensure banks wrote the appropriate number of mortgages?

Punitive taxation of banker bonuses or wages if they fail to meet hard targets.

Don't forget that a big or perhaps the biggest part of the current mess is people being lent money they can't repay.

Not true, or at least, not true of UK mortgage lending.

If lending targets are imposed then banks may be forced to lend to people that they believe to be a bad risk.

At the moment, banks have swung too far the other way and are refusing to lend to most people at all, regardless of risk.

They've gone from high risk to zero risk, and they need to go back to the middle ground of moderate risk.

Banks need to be taking on more risk, not less, if the economy is going to recover. And restoring historically normal levels of lending into small business lending, mortgages, etc is vital to economic recovery.

Your final idea is to turn base metal (at best) into gold. If the ECB was doing so well then presumably Greece wouldn't be in the papers so much!

The ECB has so far followed the classic 1930's trap of intervening too little too late, and prematurely withdrawing support only to have to reverse themselves, like with interest rates for example.

Whereas the RBA has been far more successful in maintaining financial normality by direct intervention in asset purchases such as MBS.

HAMISH_MCTAVISH

chucknorris wrote: »

There will be some who could manage the former but not the latter scenario so your system would result in more repossessions.
.

Yes.

That's what he wants.:)

chucknorris

HAMISH_MCTAVISH wrote: »

Yes.

That's what he wants.:)

I find it astonishing that he would prefer to pay an extra 0.5% on his mortgage every year to give him time to cut down on his outgoings?

If I said to my wife:

'I think we should pay an extra £3,000 mortgage interest every year (so £15,000 in year 5) to give us a chance to find ways of saving money'

I would not be able to convince her that I was serious (or sober).