Mortgage rates

fretwej

I am confused. Why is it that all the talk is about raising interest rates for savers to close the gap to mortgage rates when you could reduce mortgage rates towards saving rates to have the same effect. Is there something else that stops this happening.

MWT

Increasing interest rates both for borrowing and saving discourages spending, and hopefully reduces inflation...

grumbler

fretwej said:

I am confused. Why is it that all the talk is about raising interest rates for savers to close the gap to mortgage rates when you could reduce mortgage rates towards saving rates to have the same effect. Is there something else that stops this happening.

Base rate is 5%
Discounted variable mortgage rates are about the same 5% and fixed are about 4.5%. Trackers are about 5.5%
Best easy-access savings are about 4.3%, but lazy people are getting much less.

Now, think and tell us, what has to be done to close the gap (if anything).

fretwej

Thanks Grumbler. Got more of an understanding now from both replies. Also 100% agree with should have, not should of. Too many people of influence on the TV are saying this now and will have a drastic effect on the way that youngsters talk in the future.

grumbler

fretwej said:

Also 100% agree with should have, not should of. Too many people of influence on the TV are saying this now and will have a drastic effect on the way that youngsters talk in the future.

Surprisingly, Martin Lewis disagrees - 

The word pedants' top 10

Should have. This one doesn’t bug me, but it seems to bother many others. It’s not ‘should of” it’s ‘should have’.

Sarah1Mitty2

fretwej said:

I am confused. Why is it that all the talk is about raising interest rates for savers to close the gap to mortgage rates when you could reduce mortgage rates towards saving rates to have the same effect. Is there something else that stops this happening.

The bond market controls mortgage rates, specifically the "10 year yield", banks/governments can`t just "reduce" mortgage rates, banks do have some discretion on the interest rates they pay savers though depending on cash inflows, profits, lending etc.

https://uk.news.yahoo.com/10-gilt-yields-key-economic-141124596.html

I think the talk is more about closing the gap between savings rates and base rate rather than mortgage rates?

ElwoodBlues

grumbler said:

fretwej said:

I am confused. Why is it that all the talk is about raising interest rates for savers to close the gap to mortgage rates when you could reduce mortgage rates towards saving rates to have the same effect. Is there something else that stops this happening.

Base rate is 5%
Discounted variable mortgage rates are about the same 5% and fixed are about 4.5%. Trackers are about 5.5%
Best easy-access savings are about 4.3%, but lazy people are getting much less.

Now, think and tell us, what has to be done to close the gap (if anything).

Where can you get a fix at 4.5%? Cheapest my broker can find right now is now 5.5%, and rising.

Newbie_John

Out of the date data.. there aren't any 4.5% at the moment. Cheapest I've seen is 4.94% 10 fixed at Nationwide.

grumbler

I had a brief look at MSE, possibly too brief, sorry.

fixed - about 5%

Discount variable - about 5%

Tracker - abut 5.3%

ETA: for 66% LTV I do see some 4.39% for 5 years and 4.69% for for 2 years.

PixelPound

fretwej said:

I am confused. Why is it that all the talk is about raising interest rates for savers to close the gap to mortgage rates when you could reduce mortgage rates towards saving rates to have the same effect. Is there something else that stops this happening.

Raising interest rates is about taking money out of the economy to pull inflation down. Pulling mortgage interest rates down would not achieve lower inflation.

Given that roughly 1/3rd people rent, 1/3rd have mortgage, 1/3rd own home outright, then the rates just hit owners with a mortgage. However due to fixes then that 1/3rd is whittled down to those on SVR, trackers, discounted, or coming out of a fix.

The idea goes that rather than just trying to take money out by increasing mortgage payments, by encouraging people to save more could be taken out. There are far more savers than people effected by mortgage rate rises.

At present it's seen the major banks put up mortgages straight away but offer pitiful savings rates (many well below 3%) , but they are businesses and their aim is to make a profit and they already have enough customers so probably feel they don't need to be competitive on their savings rates. Challenger and smaller banks need to generate the business which is why they feel the need to offer stuff to top the savings rate (you can get 4.35% on easy access savings now).

Last week saw a couple of the big banks up their rates a bit after they met with the government. I guess they might have been told the government is considering a windfall tax if nothing changes.

fretwej

Thanks everybody. Much better understanding now.