Fixed rates have gone up?..... seriously!

princeofpounds

zagfles said:

OP was talking about Nationwide so equity isn't applicable, Nationwide is a mutual with no shareholders.

It'll be all down to risk. In the current environment there is a big risk of a sustained economic downturn which increases the risk both of the mortgage holder losing their job, and also house prices plummeting which could mean negative equity, ie the house is worth less than the loan.

You'll probably find lower LTV mortgages (eg 70% or less) aren't affected much if at all.

Equity does apply. A 'mutual' is just a different type of shareholder - customers are 'members' who have an equity-like interest in the mutual society. Apart from the ownership and the governance structure, it's basically equity by another name. Check out their results presentation and you'll see plenty of reference to it; e.g. CET1 stands for Common Equity Tier 1 - a regulatory definition of equity - and they actually have proportionately much more if it in their business than many of their peers. Or the 'total members interest' component of 'capital & reserves' in their balance sheet is equity capital by another name.

https://www.nationwide.co.uk/-/media/MainSite/documents/about/corporate-information/results-and-accounts/2019-2020/Interim-Results-Presentation-2019-20.pdf

To be frank, most large mutual organisations don't behave that much differently to limited companies. Often they tend to tolerate earning a lower return on capital, but the benefits that would be paid out in larger shareholder dividends then go to members through slightly cheaper products. That's why back in the 90s, when many building societies were de-mutualising, that members got what appeared to be a disproportionate pay-out as they sold their 'shares'.

zagfles

Comms69 said:

Interest rates will go up, there's no doubt about that, cant really get lower (i mean you can get negative interest, but it's basically unheard of in modern western society)

But the economy will need stability. Massive interest hikes will not help as a short term solution. I would expect them to be fairly stable for next 5 years. 

Within 18 months you can expect national insurance to be scrapped, and replaced by a single tax system. That will be a key aspect of economic recovery. 

No chance of that. A few years ago they were talking about merging the operation of tax and NI, but not the extent of NI. With no NI the basic rate of income tax for employees would need to be 39.5% to break even. NI on pensions (where for most pensioners no NI relief was given on most of their income) would cause a riot. Sal sac is relatively new.  

Comms69

zagfles said:

Comms69 said:

Interest rates will go up, there's no doubt about that, cant really get lower (i mean you can get negative interest, but it's basically unheard of in modern western society)

But the economy will need stability. Massive interest hikes will not help as a short term solution. I would expect them to be fairly stable for next 5 years. 

Within 18 months you can expect national insurance to be scrapped, and replaced by a single tax system. That will be a key aspect of economic recovery. 

No chance of that. A few years ago they were talking about merging the operation of tax and NI, but not the extent of NI. With no NI the basic rate of income tax for employees would need to be 39.5% to break even. NI on pensions (where for most pensioners no NI relief was given on most of their income) would cause a riot. Sal sac is relatively new.  

The basic rate would be lower, NI isnt 19.5% afterall. 
But yes it would fundamentally change pensions. It's likely that the rate would simply be adjusted so that pensions were still hit, but at a lower rate. 

A riot of pensioners is less cary than a riot of 16-25year olds  

zagfles

princeofpounds said:

zagfles said:

OP was talking about Nationwide so equity isn't applicable, Nationwide is a mutual with no shareholders.

It'll be all down to risk. In the current environment there is a big risk of a sustained economic downturn which increases the risk both of the mortgage holder losing their job, and also house prices plummeting which could mean negative equity, ie the house is worth less than the loan.

You'll probably find lower LTV mortgages (eg 70% or less) aren't affected much if at all.

Equity does apply. A 'mutual' is just a different type of shareholder - customers are 'members' who have an equity-like interest in the mutual society. Apart from the ownership and the governance structure, it's basically equity by another name. Check out their results presentation and you'll see plenty of reference to it; e.g. CET1 stands for Common Equity Tier 1 - a regulatory definition of equity - and they actually have proportionately much more if it in their business than many of their peers. Or the 'total members interest' component of 'capital & reserves' in their balance sheet is equity capital by another name.

https://www.nationwide.co.uk/-/media/MainSite/documents/about/corporate-information/results-and-accounts/2019-2020/Interim-Results-Presentation-2019-20.pdf

To be frank, most large mutual organisations don't behave that much differently to limited companies. Often they tend to tolerate earning a lower return on capital, but the benefits that would be paid out in larger shareholder dividends then go to members through slightly cheaper products. That's why back in the 90s, when many building societies were de-mutualising, that members got what appeared to be a disproportionate pay-out as they sold their 'shares'.

You were talking about shareholders needing to be incentivised etc, that doesn't apply to Nationwide. No Nationwide member receives profits from Nationwide and no Nationwide member can sell their "shares". There is no need to incentivise Nationwide "equity holders" in the same way as shareholders of a bank who get dividends and can sell their shares. In fact Nationwide insist on a charity declaration for new members, that if they could ever cash in their equity (ie demutalisation) they have to give their proceeds to charity.

"Total member's interests" might be equity in theory, but not in practice, ie it's not assets any individual member can cash in or a value any individual members would be assessed as owning for any purpose (eg capital for means test benefits, divorce proceedings, inheritance etc).

zagfles

Comms69 said:

zagfles said:

Comms69 said:

Interest rates will go up, there's no doubt about that, cant really get lower (i mean you can get negative interest, but it's basically unheard of in modern western society)

But the economy will need stability. Massive interest hikes will not help as a short term solution. I would expect them to be fairly stable for next 5 years. 

Within 18 months you can expect national insurance to be scrapped, and replaced by a single tax system. That will be a key aspect of economic recovery. 

No chance of that. A few years ago they were talking about merging the operation of tax and NI, but not the extent of NI. With no NI the basic rate of income tax for employees would need to be 39.5% to break even. NI on pensions (where for most pensioners no NI relief was given on most of their income) would cause a riot. Sal sac is relatively new.  

The basic rate would be lower, NI isnt 19.5% afterall. 
But yes it would fundamentally change pensions. It's likely that the rate would simply be adjusted so that pensions were still hit, but at a lower rate. 

A riot of pensioners is less cary than a riot of 16-25year olds  

NI is 12% on employees and 13.8% on employers! If you replace that with income tax, basic rate income tax would have to be around 40%.

Comms69

zagfles said:

Comms69 said:

zagfles said:

Comms69 said:

Interest rates will go up, there's no doubt about that, cant really get lower (i mean you can get negative interest, but it's basically unheard of in modern western society)

But the economy will need stability. Massive interest hikes will not help as a short term solution. I would expect them to be fairly stable for next 5 years. 

Within 18 months you can expect national insurance to be scrapped, and replaced by a single tax system. That will be a key aspect of economic recovery. 

No chance of that. A few years ago they were talking about merging the operation of tax and NI, but not the extent of NI. With no NI the basic rate of income tax for employees would need to be 39.5% to break even. NI on pensions (where for most pensioners no NI relief was given on most of their income) would cause a riot. Sal sac is relatively new.  

The basic rate would be lower, NI isnt 19.5% afterall. 
But yes it would fundamentally change pensions. It's likely that the rate would simply be adjusted so that pensions were still hit, but at a lower rate. 

A riot of pensioners is less cary than a riot of 16-25year olds  

NI is 12% on employees and 13.8% on employers! If you replace that with income tax, basic rate income tax would have to be around 40%.

Oh i see you're combining the two? Though I dont see why? The employer element would simply be renamed. 

I wasnt suggesting it would be replaced for income tax under the current system, but a new single tax (granted still likely to be called an income tax)

Getting_greyer

Banks may have a preference for more cash in hand. That will push the cost of borrowing up.  Also the cost of short term borrowing on the money markets

zagfles

Comms69 said:

zagfles said:

Comms69 said:

zagfles said:

Comms69 said:

Interest rates will go up, there's no doubt about that, cant really get lower (i mean you can get negative interest, but it's basically unheard of in modern western society)

But the economy will need stability. Massive interest hikes will not help as a short term solution. I would expect them to be fairly stable for next 5 years. 

Within 18 months you can expect national insurance to be scrapped, and replaced by a single tax system. That will be a key aspect of economic recovery. 

No chance of that. A few years ago they were talking about merging the operation of tax and NI, but not the extent of NI. With no NI the basic rate of income tax for employees would need to be 39.5% to break even. NI on pensions (where for most pensioners no NI relief was given on most of their income) would cause a riot. Sal sac is relatively new.  

The basic rate would be lower, NI isnt 19.5% afterall. 
But yes it would fundamentally change pensions. It's likely that the rate would simply be adjusted so that pensions were still hit, but at a lower rate. 

A riot of pensioners is less cary than a riot of 16-25year olds  

NI is 12% on employees and 13.8% on employers! If you replace that with income tax, basic rate income tax would have to be around 40%.

Oh i see you're combining the two? Though I dont see why? The employer element would simply be renamed. 

I wasnt suggesting it would be replaced for income tax under the current system, but a new single tax (granted still likely to be called an income tax)

Because you said "you can expect national insurance to be scrapped"! Not "renamed". Or partly renamed and partly scrapped.

It's not going to happen. There are a million other less controversial ways to raise taxes.

Comms69

zagfles said:

Comms69 said:

zagfles said:

Comms69 said:

zagfles said:

Comms69 said:

Interest rates will go up, there's no doubt about that, cant really get lower (i mean you can get negative interest, but it's basically unheard of in modern western society)

But the economy will need stability. Massive interest hikes will not help as a short term solution. I would expect them to be fairly stable for next 5 years. 

Within 18 months you can expect national insurance to be scrapped, and replaced by a single tax system. That will be a key aspect of economic recovery. 

No chance of that. A few years ago they were talking about merging the operation of tax and NI, but not the extent of NI. With no NI the basic rate of income tax for employees would need to be 39.5% to break even. NI on pensions (where for most pensioners no NI relief was given on most of their income) would cause a riot. Sal sac is relatively new.  

The basic rate would be lower, NI isnt 19.5% afterall. 
But yes it would fundamentally change pensions. It's likely that the rate would simply be adjusted so that pensions were still hit, but at a lower rate. 

A riot of pensioners is less cary than a riot of 16-25year olds  

NI is 12% on employees and 13.8% on employers! If you replace that with income tax, basic rate income tax would have to be around 40%.

Oh i see you're combining the two? Though I dont see why? The employer element would simply be renamed. 

I wasnt suggesting it would be replaced for income tax under the current system, but a new single tax (granted still likely to be called an income tax)

Because you said "you can expect national insurance to be scrapped"! Not "renamed". Or partly renamed and partly scrapped.

It's not going to happen. There are a million other less controversial ways to raise taxes.

Well NI would be scrapped in the current form anyway. But let's agree to disagree - as it's a hypothetical and i think you perhaps took my words too literally (or were abit pedantic )

princeofpounds

zagfles said:

princeofpounds said:

zagfles said:

OP was talking about Nationwide so equity isn't applicable, Nationwide is a mutual with no shareholders.

It'll be all down to risk. In the current environment there is a big risk of a sustained economic downturn which increases the risk both of the mortgage holder losing their job, and also house prices plummeting which could mean negative equity, ie the house is worth less than the loan.

You'll probably find lower LTV mortgages (eg 70% or less) aren't affected much if at all.

Equity does apply. A 'mutual' is just a different type of shareholder - customers are 'members' who have an equity-like interest in the mutual society. Apart from the ownership and the governance structure, it's basically equity by another name. Check out their results presentation and you'll see plenty of reference to it; e.g. CET1 stands for Common Equity Tier 1 - a regulatory definition of equity - and they actually have proportionately much more if it in their business than many of their peers. Or the 'total members interest' component of 'capital & reserves' in their balance sheet is equity capital by another name.

https://www.nationwide.co.uk/-/media/MainSite/documents/about/corporate-information/results-and-accounts/2019-2020/Interim-Results-Presentation-2019-20.pdf

To be frank, most large mutual organisations don't behave that much differently to limited companies. Often they tend to tolerate earning a lower return on capital, but the benefits that would be paid out in larger shareholder dividends then go to members through slightly cheaper products. That's why back in the 90s, when many building societies were de-mutualising, that members got what appeared to be a disproportionate pay-out as they sold their 'shares'.

You were talking about shareholders needing to be incentivised etc, that doesn't apply to Nationwide. No Nationwide member receives profits from Nationwide and no Nationwide member can sell their "shares". There is no need to incentivise Nationwide "equity holders" in the same way as shareholders of a bank who get dividends and can sell their shares. In fact Nationwide insist on a charity declaration for new members, that if they could ever cash in their equity (ie demutalisation) they have to give their proceeds to charity.

"Total member's interests" might be equity in theory, but not in practice, ie it's not assets any individual member can cash in or a value any individual members would be assessed as owning for any purpose (eg capital for means test benefits, divorce proceedings, inheritance etc).

No it absolutely is equity in practice. That’s why it counts as regulatory equity capital. The fact that Nationwide has an unusual way of distributing surplus retained earnings (essentially through loyalty bonuses rather than dividends) or an odd equity capital structure doesn’t change that.

Equity capital doesn’t need to pay conventional dividends. Equity capital doesn’t have to be transferable through share sales. Sure it’s a bit weird when it’s done in a non-conventional way.

Anyway, if you don’t believe me, look at Nationwide’s 2018 annual report (2019 not out yet it seems), page 178/179. 6 different types of equity are listed under members’ interests. General reserves is the largest (aka retained profits). Then core capital deferred shares. Then ‘other equity’. See here for an outline of the CCDS instruments (who get paid about a quarter of net income) https://www.google.co.uk/amp/s/www.thisismoney.co.uk/money/investing/article-2514327/amp/Nationwides-special-shares-pay-10-25--buy-worth-it.html

Anyway, there’s a reason Nationwide have to qualify their website statement of ‘having no shareholders’ with ‘(in the way that banks do)’. Because they do have shareholders, just not in the way banks do.

As for the issue of ‘incentivisation’ - it’s a much broader thing than just getting paid dividends. Out of time so I’m not going to get into that right now and that’s probably enough rambling for one evening.