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

RenovationMan

Emy1501 wrote: »

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

Totally agree with this and I've made the same point on several of ther SVR discussion threads. The banks are fully entitled to change their own SVR rates and their customers are fully entitled to take their business to a different lender - after all, if they are on SVR then they are not subject to a redemption charge. Most people will be on SVR because their original mortgage deal has lapsed and they are waiting to see where rates go before they commit themselves. They now need to decide whether to stay on SVR or to get a mortgage deal. I don't see what all the fuss is about TBH.

Thrugelmir

RenovationMan wrote: »

I don't see what all the fuss is about TBH.

The borrowers that complain the most are less likely to have the option to move lenders.

Many of BOI's customers have already opted to jump ship with one of the offers they've received. So the SVR also reflects the higher risk on the mortgage book.

Generali

HAMISH_MCTAVISH wrote: »

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.







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



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



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.



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.

You can't have a policy which involves banks taking on less leverage by forcing them to build their reserves while insisting that they take on more leverage by lending more!

The reason that the RBA has been more successful is, in part, because they are taking MBS off the banks but mostly because the banks did not leverage themselves as highly as APRA (the Aussie regulator) wouldn't let them:

Commonwealth Bank's comparison of its Tier 1 capital in Australia and the UK. CBA's Tier 1 ratio in Australia of 7.6 per cent would be 10.1 per cent in the UK under the Financial Services Authority. The European bank average for Tier 1 was 8.7 per cent in August.

By way of comparison, Northern Rock's tier 1 ratio was 7.7% (LINK) so they would need to retain rather than lend £500,000,000 to build their tier 1 assets to 10%.

If you take a money multiplier of 10 (i.e. assume a reserve ratio of 10%) across the banking industry, NRK's requirement for additional tier 1 assets would cause a decrease in M4 of £5,000,000,000 before you factor in a single default! If you add NRK's defaults of £240,000,000 in 2007 you have a drop in M4 caused by a single, bit-part lender of over £7,000,000,000.

RBS had a tier 1 ratio of 7.3% at year end 2007.

Thrugelmir

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.

QE is not being pumped directly into banks. This is a media misconception.

SecondLegDownIsTheBigOne

HAMISH_MCTAVISH wrote: »

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.

Nah. There'll be a bout of VI squealing, followed by grumbling and culminating in a jolly brisk futtbucking - public school style.

The banks will have their way.

Wookster

Hamish screaming for more of the same old stuff that got us into this mess.

Good going chap.

Batchy

Just to put my neck on the line here, there will be no BOE base rate increases Just yet... my prediction... another 3+ years.

Batchy

Im with Post Office through the BOI, and mine tracks BOE base rate.

No issue here, its effectively a lifetime tracker, and since I got it a couple of years ago, its not as "bad" as the rate now on the same product.

Kennyboy66

HAMISH_MCTAVISH wrote: »

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

So the obvious solution for bankers would be to make bad loans, so that they avoid punitive taxation ?

A peverse incentive wouldn't you say.

It appears you are floundering out of your depth.

Best stick to house prices.

HAMISH_MCTAVISH

Kennyboy66 wrote: »

So the obvious solution for bankers would be to make bad loans, so that they avoid punitive taxation ?

No, the obvious solution would be for bankers to get back to historically normal, prudent and sensible levels of deposit requirements.

Where the average credit rating or better, a 5% to 10% deposit and a decent job were enough to get a mortgage at non-punitive rates.

In which case they would have absolutely no problem issuing 150K to 200K mortgages a month to people who were a good credit risk.

A peverse incentive wouldn't you say.
It appears you are floundering out of your depth.

The only one floundering here is you, and the perverse incentive is the one we have now.

Where bankers have been allowed to engage in cartel-like behaviour and drive up mortgage profit margins by 300%, while reducing lending by two thirds, so making the same money for a third of the work and screwing the economy over in the process.