Think about the mortgage you are taking on, the debt you are taking on

grizzly1911

TheFactory wrote: »

No chance, I believe we will see a rate rise after the election but it will be very modest. Why do people think the banks can and will be able to keep the historically high margins we see today?

When the BOE rate hit 15% in the early 80's were most banks adding 4% on that too?

What are today's margins compared to the early 80s? Were the products and risks the same?

wotsthat

grizzly1911 wrote: »

What are today's margins compared to the early 80s? Were the products and risks the same?

Hang on. Greedy bankers are high on your blame list but if anyone suggests that current margins aren't sustainable in a recovery you question the logic.

Martin Lewis was warning about this 'ticking time bomb' years ago..

Scrootum

wotsthat wrote: »

Hang on. Greedy bankers are high on your blame list but if anyone suggests that current margins aren't sustainable in a recovery you question the logic.

Martin Lewis was warning about this 'ticking time bomb' years ago..

Would be interesting to see how that graph looked before the credit crunch.

I do remember in the early 90s thinking that a mortgage rate in single figures would be welcome.

grizzly1911

wotsthat wrote: »

Hang on. Greedy bankers are high on your blame list but if anyone suggests that current margins aren't sustainable in a recovery you question the logic.

Martin Lewis was warning about this 'ticking time bomb' years ago..

That is a high horse you are on. I simply asked the question.

Is there a breakdown of what the typical margin consists of?

Loughton_Monkey

grizzly1911 wrote: »

That is a high horse you are on. I simply asked the question.

Is there a breakdown of what the typical margin consists of?

The margin consists of "... as much as we think we can get away with..."

Do you really think that they have actuaries sitting there in dark corners working out.. 0.7% to pay the Libor rate, 0.3% for admin expensies, 0.7% for sales expenses, 0.5% for calculated 'risk', and 0.5 % for profit... that's 2.7%, so voila! Eureka! We charge Base plus 2.7%?

More a case of "Well we know we can survive with a 2.5% over base margin easily. Nationwide are charging 5%, Halifax 4.9%, so let's go in at 4.95%. 4.45% over base rate.....

.... large gin & tonics and bonuses all round...:)

grizzly1911

Loughton_Monkey wrote: »

The margin consists of "... as much as we think we can get away with..."

Do you really think that they have actuaries sitting there in dark corners working out.. 0.7% to pay the Libor rate, 0.3% for admin expensies, 0.7% for sales expenses, 0.5% for calculated 'risk', and 0.5 % for profit... that's 2.7%, so voila! Eureka! We charge Base plus 2.7%?

More a case of "Well we know we can survive with a 2.5% over base margin easily. Nationwide are charging 5%, Halifax 4.9%, so let's go in at 4.95%. 4.45% over base rate.....

.... large gin & tonics and bonuses all round...:)

How else would they know they survive on 2.5%? If you need to accrue capital or are writing off large sums of money then costs will increase.

Back in the good old days of personal interaction, at the discretion of the "manager" they would be varied by the quality of the customer. Anything from 1 - 7% for arranged personal O/D's and loans. Similar for businesses too. The larger corporates could negotiate much finer rates.

A lower margin/lower quality offering tended to attract higher fees, including mortgages.

Loughton_Monkey

grizzly1911 wrote: »

.......A lower margin/lower quality offering tended to attract higher fees, including mortgages.

Agreed.

I was always willing to pay an extra 1%/2% for my loan, provided it was transmitted to the vendor's solicitor in brand new crisp notes in leather briefcase....

A cheaper loan would probably involve grubby cocaine-stained £50 notes bunged across in a shoe-box. Or worse still, electronic transfer.....

antrobus

TheFactory wrote: »

No chance, I believe we will see a rate rise after the election but it will be very modest. Why do people think the banks can and will be able to keep the historically high margins we see today?..

What historically high margins?

According to KPMG's UK Banks: Performance Benchmarking Reports our big 5 banks had lower margins in 2012 compared to 2011; 217 bps compared to 207 bps. Back in 2008 margins were more like 250 bps.

michaels

antrobus wrote: »

What historically high margins?

According to KPMG's UK Banks: Performance Benchmarking Reports our big 5 banks had lower margins in 2012 compared to 2011; 217 bps compared to 207 bps. Back in 2008 margins were more like 250 bps.

This is or course one area where zirp has hurt the banks. With 5% bank base a 0% (1% if you were lucky) current account and 3% savings account were nice little earners for the banks; with 0.5% base, unless you have negative interest rates there is not a lot of margin to be had.

wotsthat

grizzly1911 wrote: »

That is a high horse you are on. I simply asked the question.

Is there a breakdown of what the typical margin consists of?

Most reports show UK lenders have managed to expand mortgage margins during the recession. Given your default position is that bankers are greedy I'm surprised you even question this.

My guess would be that if there was a continued economic recovery and the mortgage market became more competitive there's between 0.5% & 1.0% margin that lenders could give up. i.e. a decent buffer as rates start increasing.

As for what the tripling of margin consists of - it's profit. Unless you can think of a huge increase in costs associated with mortgage lending since base rates fell.

First base rate increases will be interesting but if they are in response to a further improvement in the economy most homeowners will breeze through it.