Bank profits from mortgages

housebuyer143

robinwales said:

MorningcoffeeIV said:

Indeed. But that's a separate discussion. 

Until the BoE stop raining rates, lenders will continue to react 

I think it's variable rate mortgages that are the problem from the customer end. There doesn't seem to be any limit on how much the rate can rise on a variable rate. I recall having a 14% mortgage rate in 1993. If a variable rate mortgage went up to that level now you would be paying £29k a year on a £200k mortgage. Perhaps variable rates should be stopped? You take out a fixed rate mortgage and you know what your current and future costs are. With variable rate you are in the dark, as people are now finding out. If you have a fixed rate and the rates get lower (cheaper) then you can just re-mortgage for about £1k costs.

Banks are often pretty strict about lending limits, but having given you a variable rate they can then massively increase your costs by their own actions, which seems to me to to contradict their initial caution in giving you the product.

It's customer choice. If they want a variable rate then that's what they get, if they want fixed then they get fixed. Why take away choice? 
Lots of people on variable rates did extremely well the last 15 years.

penners324

robinwales said:

MorningcoffeeIV said:

robinwales said:

Might it be better for customers if they put up rates as they are doing, but all of the extra income (from interest) that they receive was used to pay off the capital owing on your mortgage, instead of it going to the banks as profit? 

You can't put interest rates up without the amount of interest paid going up (assuming the same balance). If it goes into the capital, then it's simply an overpayment.

Banks won't absorb the increased risks and increased costs of inflation on behalf of the customer. 

But the reason the BoE is doing this is not working. Inflation is only reducing very slowly, and it is crippling the country, both for business and mortgage holders. It is a blunt instrument to massively increase the base rate and hope that it won't cause too much damage. My suggestion is to use that instrument to control inflation, but at least give mortgage holders some of the money back in the longer term. Why are banks making record profits?

The banks aren't making massive profits from mortgages. Just big profits, and they always have.

The banks are borrowing money based on the libor rate to then issue as mortgages.

Interest rate movements have always been used to manage inflation. 

Edi81

penners324 said:

robinwales said:

MorningcoffeeIV said:

robinwales said:

Might it be better for customers if they put up rates as they are doing, but all of the extra income (from interest) that they receive was used to pay off the capital owing on your mortgage, instead of it going to the banks as profit? 

You can't put interest rates up without the amount of interest paid going up (assuming the same balance). If it goes into the capital, then it's simply an overpayment.

Banks won't absorb the increased risks and increased costs of inflation on behalf of the customer. 

But the reason the BoE is doing this is not working. Inflation is only reducing very slowly, and it is crippling the country, both for business and mortgage holders. It is a blunt instrument to massively increase the base rate and hope that it won't cause too much damage. My suggestion is to use that instrument to control inflation, but at least give mortgage holders some of the money back in the longer term. Why are banks making record profits?

The banks aren't making massive profits from mortgages. Just big profits, and they always have.

The banks are borrowing money based on the libor rate to then issue as mortgages.

Interest rate movements have always been used to manage inflation. 

LIBOR has pretty much gone. Replaced by SONIA which is similar but has no credit risk included in the rate.