Interest rate cut from 4.5 to 3 % [shock]

[morningpaper]

Bank of England just announced 1.5% cut

can't find you!!

argh, just realised have books in the boot of my car! argh argh!!

Dinny have you got 12 books in there?

"we were set to go and see a property we were fairly interested in seeing, EA just said vendor has put the proce up 125K after hearong about interest rate cut! pmsl"

Thats insane. There is still a long way for prices to fall IMO.

Bramshott, might be worth thinking about reducing the mortgage a bit if you have enough savings to do it, but I'd definitely keep back 6 months outgoings at least. I should perhaps put some of my savings into the mortgage, I could have them back if needed, but I have them in ISAs and I wouldn't be able to build up a level of savings again (I used to put aside money pre-children and I don't know when if ever that will be possible again).

It's probably a good idea to look at what your savings are earning and consider moving them, but look at safety of where they're going not just rates (mine are divided between Nationwide and HSBC and if those go down then nowhere will be safe).

Nice work Gord and Darling re:bullying the banks to cut lending rates.

news.bbc.co.uk/1/hi/business/7716086.stm

just had a letter from natwest, our variable rate's been cut by 0.5%

Full cut passed on by Nationwide - we're on the SVR, now at 4.69. My decision not to fix in August vindicated - pure guesswork! [very smug emoticon]

I'd like to know if you people (in the UK) realize that "fixed for 2 years, then variable" is unheard of in most other places.

People either get variable interest rate mortgages, or fixed rate ones. That is, fixed rate for the duration of the mortgage, not just for the first couple of years.

I can't get my mind around how and why anyone would get a mortgage whose payments are predictable for only the first 2 years. How can you take the risk that rates might increase considerably, especially given their seriously low rates of the past couple of years?

Several years ago, we got a mortgage whose rate is variable only within a +1%/-1% range for all 15 years of duration. That is, it can vary between 2.5% and 4.5%. This was cheaper than fixed rate.

Most people remortgage at the end of the fixed period Cote.

The problem has been that mortgages have been approved irresponsibly to people who were stretched even on the initial fix, with little or no deposit, sometimes fraudulently assessing their own income, at the peak of a property bubble.

we're just coming off a fixed rate of 4.79 moving to a lifetime tracker 0.49% above base rate so we're VERY happy

re 'remortgaging every 2 years'

The problem with that strategy is that a fixed rate is determined with consideration to (1) current rates, and (2) expected future rates.

When rates are at 2%, you can get a 4% fixed rate. However, when rates rise to 3% after two years, especially if it looks like they will continue to rise, you might bet offered a fixed rate of 6%.

When interest rates are at 20-yr highs (for example) I would understand taking the risk that they will go lower over the next two years. Even the fixed rate you get then will be lower than the fixed rate you get now.

Under any other circumstances, especially at today's low interest rate environment, it is incredible to see people taking out mortgages that will revert to variable after only 2 years.

sallystrawberry - who is your fixed with? There is a sneaky way but totally legit way to get out of fixed with a certain lender

Altho' this will not turn the housing mkt and general economy it should soften the blow allround so good news allround

What do people think of 0.5% reduction? Obv glad to get anything but ...

thes banks are really thick! If mortgage rates drop then they get less bad debts and their P&L is better.

Now their mortgage rates are a function of :
1)interbank lending rates (LIBOR)
2)savings rates that they pay
3)BoE rates

The BoE has helped them with 3) and they control 1) and 2). All they have to do is get together and agree to decrease 1) together. But they are too flat footed and thick to work that out. Think that it is called "prisoner's dilemma" in economics.

Stealth- to answer your question directly, the "free market" isn't working so they need to have their heads bashed together - .5% is NOT acceptable as they should be able to work this one out!!

great news...just wish i hadn't fixed our mortgage @ 5.99% for 10 years...oh well..

daftpunk- on average 6pc over 10 yrs isn't that high. Perhaps 0.5pc high but it may average out okay. who knows.

well yes, that's true, 10 years is a long time.

ToughDaddy - It is a dangerous assumption to assume that players in the financial arena are "thick" (although after so many failed banks I can see why you would think so )

You assume that lower rates are good for banks, which is not necessarily true and depends on the bank (it's liquidity, operations, etc). It is good for banks who have high short term financing needs, but others make more money in high interest rate environments, especially from treasury and money market activities.

So not really "Prisoner's Dilemma", as low rates are not the best outcome for all banks.

The rational strategy at current environment of liquidity crises and uncertainty is to close the shutters, hold the fort, and wait for the storm to pass - which is what banks are currently doing.

Btw, bad debts look bad on the Balance Sheet, rather than the Profit & Loss Statement (P&L).

"Now their mortgage rates are a function of :"

4. Risk assessment for the future.

This is the part that BoE is having trouble cracking, despite lowering interest rates significantly.

As long as banks feel there is a higher risk of default now than in previous years, interest rate cuts will be reflected in a muted manner to the customer, and that is an entirely rational game plan for the banks.

CoteDAzur:-

The banks should be more concerned about the net margin (credit spreads charged) between their lending and borrowing. In the current state of the economic cycle, lower absolute interest rate levels will reduce default rates?!! which will reduce their bad debts? The cre

I don't think that all bankers are thick. If you knew who I was in RL then you would know that is not the case. But it is taking govt intervention to bring about a rationale solution to the bank problem: lower absolute interest rate levels doesn't mean that the banks can't preserve their margins. In fact reducing LIBOR increases their lending margins, right?

irishbird - Yes, credit bubble needs to deflate and it seems contradictory that the government is lowering interest rates which will facilitate further borrowing. However, they are trying for a soft landing, rather than the crash and burn that looked likely in previous weeks and hence the lowering of rates.

ToughDaddy - I am not sure exactly what you wanted to say, but lower LIBOR means higher margins for banks only if their lending rates don't decrease accordingly - which I thought you were saying wasn't good for them.

irishbird- the amount of credit available is shrinking. Govt is asking the banks to roll their credit facilities for example. So friend of mine had profitable business but HBOS called in the loan as they can! and now deem him riskier. So I don't think that they are talking about increasing the total amount of credit outstanding. They are asking the banks not to lend the same amount as 2007 which will keep steady state.

CoteDAzur- my point is that that the banks could KEEP the same margins if Libor moved in line with BoE rate. And at the same time reduce the default rates of businesses. So overall they win. No to do this they need reduce libor in line with BoE rate like it used to. But that is not happening on the "free mkt", hence intervention by the govt. Their is no question that the banks have acted sub-optimally for the economy as a whole and infact for the banking sector as a whole. Lots of bright people working in banks but those RUNNING banks aren't always that smart in my experience.