Are banks taking advantage of panic

[MsGus]

The BoE is chastising banks for increasing mortgage rates higher than they should have.

They have panicked people into locking themselves into 5yr and 10yr deals knowing that the rate might peak at a lower level. From a peak, the only way is down.

It is scandalous especially as they are not increasing interest rates on savings in the same way.

www.telegraph.co.uk/business/2022/11/03/mortgage-costs-have-risen-high-says-bailey-rebuke-markets/

Yes I agree- the main banks are making a huge spread. However, I guess it is also a question of swap rates and I am no expert on those.

You can get good savings rates now if you tie your money down for a year or more etc4-5.5 per cent etc. Hargreaves Lansdown for example now has an active savings platform where you can invest across different banks quite easily, each meant to be covered by the FSC individually.

People shouldn’t panic and trust the press and fix rates in a rush. Sadly, many people are not particularly financially literate. There is no way I would be signing up to anything but a low tracker right now.

Sadly in this day and age the normal person believes what they read in the rag paper. The financial markets have been expecting just a 0.75 rise and that is what happened. With a recession forecast they don’t seem to think rates will go up that much more. Today the UK markets have rallied a bit. Looks like they just wanted a fiscally responsible government and not too high a rate rise. The US is going up faster and higher but have a totally different economy and seem to be more worried about nipping inflation in the bud.
I think you can blame the media as much as the banks really. Actually speaking the media has a lot to answer for these last few years. I think many journalists are far worse than the politicians. Everyone should have a certain amount of integrity and just publishing some big scare story because it sells is massively selfish. I think some facets of the British media have as much to answer for the mess in the country since 2016 as the Tory party.

If the BOE thinks the banking sector is uncompetitive, then it should be campaigning and outlining ideas for regulation to improve the sectors competitiveness.

The market is expecting one more rate rise from the Fed in December of around 50 bps and then a pause. The US 10 year and 2 year treasury yields dictate direction of interest rate rises and by how much. Fed rates have nearly reached the 2 year yield mark.

www.marketwatch.com/investing/bond/tmubmusd02y?countrycode=bx

The market is bouncing of expectation of the rate hike pause and a positive US jobs data report. Recession will slow down inflation but it won’t get rid of it. If the Fed decides to pivot from there and go back into QE to limit the effects of recession then the markets will spike in response.

It doesn’t matter that the US economy is different to ours as they are the global reserve currency. Oil is priced and traded in $ (for now). If they raise we have to raise, just like if they cut so do we. If we didn’t our £ would tank against the $ even more than it has. Central bank interest rate decisions are based on protecting the currency rather than mortgage rates.

It doesn’t really matter what happens with politics in this country because we will follow the Fed regardless, just the same as the EU and Japan have to which is why all the currencies have fallen against the $.

Perhaps, but 3% base rate historically is not a peak.

Historically rates have been 3-4% during a recession and then rise to 6-7% as the economy recovers. I guess this is part of the banks thinking on the fixed rates.

You will never see historical peak rates again due to the debt/GDP ratio.

In 1980 when Volcker killed off inflation by raising rates to 20% the debt ratio was 1/4 of what it is today. 1/4 of 20% is 5%, so that’s where you can approximately expect the ability to raise to the equivalent point today.

www.thebalancemoney.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287

so if interest rates are overdone by Fed, would BOE follow? My only worry is that if we go into a deep recession, young people will be the most disadvantaged.

The problem is that the BOE have little choice but to follow and yes its the younger generation that will suffer most. It was ever so - like the early 80s.

It’s not entirely true that the BoE follows the FED nor is it as simplistic as you suggest.

www.fxstreet.com/amp/analysis/boe-is-in-the-game-will-fed-follow-202209291152

www.reuters.com/article/idIN416092293820150721

uk.finance.yahoo.com/news/bank-of-england-fed-interest-rates-pound-145055595.html

It really depends on what the BoE is trying to achieve.

The BOE is required to bring inflation back to 2% in the medium term. Rate rises in the US make this more difficult with the risk of sterling depreciation. It is quite possible that we don't need rates above 4% in isolation but the Fed sounds hawkish to me and appear to want to go quite a bit further.

Why are you posting articles from 2015? Did you just Google BoE follows the Fed and paste the results?

Of course the BoE didn’t have to follow the Fed ever more downwards in the midst of QE indulgence but they did. Now they have no choice going upwards the other way or the £ devalues to toilet paper.

I posted a range of articles including one from 2015 to show at different times, they employed different strategies depending on what they want to achieve. Hence, the BoE does not “have to” follow the FED.

Too many armchair analysts. Yet consensus seems to be in the wind.

That should have said including from 2022. Different years, the BoE was doing different things. It depends on the goal.

What's scandalous, variable rate mortgages are available everywhere. It's up to the buyer to research and then select what they want.

Are you the Economic Minister for Turkey? Erdogan sacked all those that disagreed with him being the only country with a central bank moving in the opposite direction to the Fed and cutting rates.

Their inflation rate is currently at 85%.

www.cnbc.com/amp/2022/11/03/turkeys-inflation-tops-85percent-as-erdogan-continues-to-rule-out-interest-rate-hikes.html

Because Bailey is commenting on the economic circumstances as things stand currently.

The US interest rates have approached the 10 year treasury yield rate, so the Fed is nearing a ‘pause’. This is why the markets are reacting with a bounce.

If the yield rises again say in 2023 with another inflationary spike then the Fed will continue to raise again. That leaves all other central banks no choice but to follow or else devalue their currencies. However debt ratios become a major issue the higher rates go (see Japan currently).

Yes I think banks have been taking advantage of panic. They were very quick to increase the interest on fixed rate mortgages but in no apparent hurry to increase the interest rate savers receive from them. However, after the Bank of England Governor Andrew Bailey made his statement about homeowners being overcharged, many high street banks have announced cuts to their fixed rate mortages including Halifax (0.24% reduction from next week)which has pushed some of their fixed rates back below 6%.

An article in yesterday's Telegraph stated that:

Clydesdale Bank, part of Virgin Money, has also cut rates on its two and five-year mortgages by up to 0.3 percentage points, with rates now starting from 5.44pc.
Smaller lenders have also acted to cut rates. The Cumberland Building Society today cut selected fixed deals by up to 0.67 percentage points, while Yorkshire Bank cut its fixed rates by up to 0.3 percentage points.
Principality Building Society, Leeds Building Society and specialist lender Hodge have also reduced fixed rates.
Many lenders raised rates on their variable and tracker rates, which fluctuate in line with the Bank Rate, but no bank or building society so far has increased rates on a fixed-rate deal since the Bank’s rate decision.

As someone mentioned, the media has a lot to be blamed for. It generates and escalate panic, which leads people to make poor decisions. It often can made a bad situation worse.

@Lightscribe I’ll leave you to argue with yourself.

I just locked into a 2.8 per cent deal for 5 years and I consider myself incredibly lucky. This isn't a short term blip.

I think it is a bit naive to think the Fed will just act in the US’ best interest only. They are fully aware commodities, oil etc all traded in dollars and the impact of their decisions globally. We aka the Western world are at war with Russia (call it an energy war for now) so no way are they going to just act rashly and weaken Europe further without very good reasons. There is so much at stake here.
I see us going to 3.5 max 3.75 per cent base rate and sticking there.

www.bis.org/publ/bisbull62.pdf

For anyone interested, the BIS regulates the Central Banks and there are regularly interesting articles on their website.

I agree with this and they did the same thing during Covid, whipping people into a frenzy of anxiety. And now we are paying for the results where many peoples mental health is damaged and the economy has stagnated.

I agreed with lockdown and the furlough scheme at the time, but it all went on for too long and the media had their part to play in keeping us all feeling scared even after the vaccination programme should have freed us to re-open society (apart from the CEV who still needed support).