Officially in recession

Graham_Devon

HAMISH_MCTAVISH wrote: »

You really must try debating without throwing in all the childish insults. One day perhaps.....

Have a flick through the last 3-4 pages Hamish. Take a look at what you thanked, and take alook at what you wrote. "Idiot, misfortunate, sad" etc was in most of those posts. Yet you whimper at the words "making you look silly"?

The frock you put on "normal" though is just delicious. You have dressed it up so that you define "normal", but completely ignore the fact that your definition of "normal" relies on £1tn worth of fairy money What's normal about that!?

Emy1501

HAMISH_MCTAVISH wrote: »

I don't think anyone is suggesting that such a bank would have to be abnormally cheap, or abnormally loose with lending standards..

Just that it would lend at normal rates and terms without the funding constraints currently preventing lending.



Printed money, but it would have to be paid back eventually.

What I'm suggesting is reasonably normal lending, that fills in the gaps where the banks are not currently doing their job.

So for example in the case of mortgages a 5% to 15% deposit, less than 5.0 LTI, rates of between 4% and 5.5%, and at least the UK average credit score required. No self cert, No I/O, etc.

If you have a better deposit you can already get better rates elsewhere, and that would continue.

So no business would be taken from existing lenders, as they're pretty much not lending to these people now.

In the case of small business and consumer lending, similar common sense, historically normal, lending standards would apply.

Sounds like high risk lending at low risk rates. Not sure it would go down well with the media or the public.

90-100% mortgages only made up about 15% of the market pre crash so you are talking about a rise of only about 5-10k of approvals. Month.

Would make more sense to me for the BOE to offer the printed money to banks on the basis they lent the money to people with low deposits and took the risks of it. It would be the same with business lending.

HAMISH_MCTAVISH

Emy1501 wrote: »

90-100% mortgages only made up about 15% of the market pre crash

Do you have a source for that?

so you are talking about a rise of only about 5-10k of approvals. Month.
.

10K approvals that then cascade up the chain, as they're mostly FTB-s.

Wouldn't surprise me to see 10K turn into 40K.

Emy1501

HAMISH_MCTAVISH wrote: »

Do you have a source for that?




10K approvals that then cascade up the chain, as they're mostly FTB-s.

Wouldn't surprise me to see 10K turn into 40K.

Mortgage board suggests affordability and credit worthiness is big problem these days. Little chance we would see approvals rising a lot in view of current guidelines.

DannyRadclif

Emy1501 wrote: »

Mortgage board suggests affordability and credit worthiness is big problem these days. Little chance we would see approvals rising a lot in view of current guidelines.

But we still have cheap easy credit compared to what it will be like in a year or two. Just wait until the latest round of bailouts runs out in the Eurozone then see how much it costs for banks to borrow and see how much harder it will be so that the computer doesnt just say no.

Graham_Devon

Hamish, Question...

In your fairy bank, you state the interest rate should be 4-5.5%. Is this rate linked to the BOE rate? So that when say the BOE rate is 4%, the mortgage would cost 7.5-9%?

Or does your fairy bank lend money at 25 (actually probably up to 40 I'd guess?) year fixes, regardless of other rates and banks?

DannyRadclif

Graham_Devon wrote: »

Hamish, Question...

In your fairy bank, you state the interest rate should be 4-5.5%. Is this rate linked to the BOE rate? So that when say the BOE rate is 4%, the mortgage would cost 7.5-9%?

Or does your fairy bank lend money at 25 (actually probably up to 40 I'd guess?) year fixes, regardless of other rates and banks?

If average mortgages are around 4-5% now while base rate is still 0.5%, then what will they be when base rate returns to normal? The same multiple when base rates return to norm could be very high indeed.

The average for the last few decades is around 8% isn't it? This is what the norm is, but when we return to norm property will also have to come back down to the norm.

Graham_Devon

That's why I ask the question. I am assuming (until proven wrong) that this banking land of goodness set up with a trillion printed squids wouldn't actually increase their rates....ever.

I'm also assuming, he'd still describe this as "normal".

HAMISH_MCTAVISH

Graham_Devon wrote: »

Hamish, Question...

In your fairy bank, you state the interest rate should be 4-5.5%. Is this rate linked to the BOE rate? So that when say the BOE rate is 4%, the mortgage would cost 7.5-9%?

Or does your fairy bank lend money at 25 (actually probably up to 40 I'd guess?) year fixes, regardless of other rates and banks?

Not that it matters, as no government has the balls to do it.

But a few things are of relevance here.....

1)The fairy bank creates the money from thin air. It has no need to make any particular return beyond covering operating costs, as when the money is paid back it is destroyed anyway.

But.....

2) At a 5% return over 25 years, the fairy bank would generate roughly £900bn return of real capital form the real economy on the initial £1tn of fairy capital invested. This would pretty much be enough money to pay off the entire UK public debt in full today, or cover the entire UK debt service costs for the next 25 years. At a cost to the UK taxpayer of...... Zero.

and....

3) £1tn sounds like a lot. But we're more than a third of the way there with QE already, and will probably end up half way there anyway by the time current QE is done. Should have just gone with the fairy bank from day one.

In terms of competitiveness, I've deliberately suggested that the Fairy Bank should only target market sectors not currently being serviced well by other banks. High LTV ftb-s, small business lending, etc.

As other banks are doing virtually none of that now, they shouldn't mind if someone else does it.

In terms of rates, the Fairy bank has zero cost of funding, so all the interest charged is margin. To avoid unfair competition it should operate on BOE+1 with a collar at the initial 4% to 5.5% rates.

We won't see BOE rates of 4% in the next decade anyway, so safe enough for borrowers. And BOE plus 1 worked well enough for the market historically when base rates were higher, so no competition issues for other banks.

Graham_Devon

Thought so. This normal lending won't be tied to any normal market rates or influences