What is Barclays Bank Base Rate?

kirbster1977

no minimum

gardeners26

The barclays bank base rate does track the BOE.

See following link.

http://www.personal.barclays.co.uk/B...up&value=15396

Hope this helps

See if anyone can spot two glaring mistakes in this link- Barclays own !
No wonder we,the tax payers,have had to bail them out.

bengee1977

MarkyMarkD wrote: »

They are the same rate.

... for now

neverdespairgirl

gardeners26 wrote: »

See if anyone can spot two glaring mistakes in this link- Barclays own !
No wonder we,the tax payers,have had to bail them out.

Barclays haven't been bailed out, I think?

MarkyMarkD

Barclays and HSBC are the two major banks who have not been bailed out.

The majority (by number of entitities) of the building society sector has not been bailed out either.

The idea that all lenders ought to "pass on" (stupid wording, because these are savings the lenders are not experiencing) the base rate reduction "because they've been bailed out" is wrong because:

1. most of them have NOT been bailed out; and
2. even if they have/had, it doesn't make it any more feasible for them to operate at negative margins - the point of recapitalisation was to make them safer; making them lose money does precisely the opposite.

House_seller_2008

MarkyMarkD wrote: »

Barclays and HSBC are the two major banks who have not been bailed out.

The majority (by number of entitities) of the building society sector has not been bailed out either.

The idea that all lenders ought to "pass on" (stupid wording, because these are savings the lenders are not experiencing) the base rate reduction "because they've been bailed out" is wrong because:

1. most of them have NOT been bailed out; and
2. even if they have/had, it doesn't make it any more feasible for them to operate at negative margins - the point of recapitalisation was to make them safer; making them lose money does precisely the opposite.

The point with base rate trackers though, is that the banks have drawn up a contract to follow the base rate. This is different to the decision they must make on their standard variable mortgage rate, which they do not have to link to the base rate. In the case of the base rate trackers they must use that rate or face the threat of legal action for breach of contract.

The banks will only be operating at negative margins if they have not spread their risk or hedged against adverse movements. The rate that they can pay savers is also lowered.

The money lenders have to take a longer term view of the market. Don't forget, the base rate trackers have no upper limit, so if the base rate went up to 20% would the banks turn round to those with tracker mortgages and say that this was higher than they expected and allow borrowers to pay less?

MarkyMarkD

Your suggestion that banks could have "spread their risk" or "hedged against adverse movements" is nice in theory, but flawed in practice.

The specific risk we are talking about here is interest rate basis risk: the risk that the LIBOR funding rate the banks have to pay moves out of kilter with the BoE base rate which (some of) their mortgage rates are linked to. Whilst you could/can buy interest rate swaps which protect against this risk, the price for them was prohibitively high and I would doubt that any mainstream lender in the UK would have bought them.

Obviously, with the benefit of hindsight, they should have done so - and passed the price on to borrowers. But as their competitors weren't doing so, they wouldn't then have sold any mortgages. All the lenders made the same mistake, and thereby forced each other to continue making the same mistake!

The alternative would have been to charge borrowers a rate linked to LIBOR. But virtually no lender did that - a few tried, but the borrowers didn't seem to like it very much.


You also suggest that "the rate that they can pay savers is also lowered". But it's not lowered by 1.5%! Show me one major savings institution which is paying 1.5% less on its core savings accounts than it was before the base rate cut.


Your point about base rates increasing is amusing but irrelevant. The banks - and the borrowers - are contractually bound to the rate differential agreed up front. I'm not saying that banks are not bound, merely that they are financially in a hole as a result of offering these products.

House_seller_2008

By stating that banks follow each others lead, are you saying that free markets and competition do not provide the best operating environment for banks in the long term? Is this why governments are now having to step in? Perhaps the banks are too central to the scheme of things to be left to their own devices.

When this crisis ends, I wonder if the banks will remember this or if in the future, when all of this becomes a distant memory, "aggressive" lenders will spark off another downward spiral. Governments appear now to be showing that they will cushion the fall in the bad years - after the executives have banked their bonuses in the good years. This safety net could take the worry out of future risk taking.

MarkyMarkD

House_seller_2008 wrote: »

Don't forget that the Bank of England rate falling means that the bank will be benefiting from those people on fixed rate deals who will not see a reduction. So, even if the base rate falls to 0%, I can't see any reason why Barclays should not be able to honour their tracker as they will be gaining from all those fixed rate deals. Conversely if the base rate went up to 20%. Barclays would then be subsidising the low fixed rate deals while taking the profit from the trackers.

What you are stating here is a common, but entirely wrong, misunderstanding of how banks fund mortgages.

If you borrow at a fixed rate from a bank, they enter into an interest rate swap contract with another party (probably another bank), under which they pay a fixed rate, and receive LIBOR.

So, overall, the rate that the bank receives from your fixed rate mortgage is LIBOR +/- the margin between the swap rate and the fixed rate you pay.

E.g. fixed rate 4.95%; swap rate 5%; LIBOR 4.3%

Bank receives 4.95%, pays 5% on the swap and receives 4.3%. Overall, they receive 4.25%.

If LIBOR falls by 1%, they continue to pay 5% on the swap and just receive 3.3%. Their income falls by the same amount that LIBOR falls.


If banks operated the way you suggest they operated, they would go bust. Banks cannot possibly cope with the sort of interest rate risk which would result if they didn't hedge out their fixed rate mortgage exposures. Building societies are no different.


The one slightly relevant point I can draw from your misunderstanding (and my response) is that lenders who have mainly fixed rate mortgages on their books have benefited from the high rate of LIBOR, compared to BBR, as they are receiving LIBOR on much of their assets and hence better off. Those who have mainly tracker rate mortgages haven't experienced this benefit.

matt83uk

Really trying to get my head round your post but struggling, any chance you could elaborate?

You say 5% on the swap - What is the swap figure?

Thanks