Mortgage interest rate FAQ

BOE on hold again this month at 0.5%. Yay the party still continues way after normal hours with these lovely trackers. But its about 4am now. We`ve had a very good run so we cannot complain. Dawn will be on us soon. Continue to build that war chest up for when the tide really turns and you need to sleep soundly and avoid a hangover. Are these increased SVR`s the first few small  waves before the tsunami I ask. Better safe than sorry.
Best prepare - so batten down the hatches 🙂

Hi Jonathan

I like the strategy of "plan for the worst, hope for the best".

My view is that this party has only just  got started. The last three years have been the beginning of a very long carvival for those of us on bank base rate trackers. I reckon we have at least another 5 years of parties and after parties but when the carnival does come to a close a lot of people are going to have some very nasty hangovers and a fair few will fall due to alcohol poisoning.

I'm curious as the banks seem to be completely divorced from any relationship with the bank base rate; what difference does the BoE actually have on mortgages apart from us on those lovely base rate trackers.
Banks used to charge a margin of 1% above the base rate.
That relationship no longer exists.
How does a low bank base rate affect anybody.
As far as I am aware credit card rates are 29%, loan rates 7%, overdrafts 17 %.
Now I don't know enough about how the system works; but if the govt expects low interest rates will encourage spending I can't see how if the prevailing actual interest rates remain effectively as they were before the credit crunch.
My point of view is just as a simple old consumer or rather not at the moment.
I can't afford consumption of any sort apart from just about living!

I want to know why it takes a dozen people two days to make a decision that a five year old could male in ten seconds, talk about jobs for the boys, this needs addressing, come on chancellor, an obvious saving here.

I'm not 100% sure but I don't think the Bank of England set the base rate with buy to let investors in mind, or home owners for that matter. In fact probably quite the opposite. When rates were 15% and the Chancellor Norman Lamont had ' a very difficult day' soon after George Soros had bet against the £ and it was forced out of the ERM many home owners were no longer able to afford their mortgages. Right now the concern for the B of E is principly to keep inflation within target and by natural laws of economics help stimulate growth by not putting the brakes on too hard or raising rates in other words. If this debt issue is anything like Japan's was which started in the early 90s then we'll be enjoying 0.5% for many years to come. However if quantitive easing ever leads to too much money sloshing around in the economy - and we may soon be seeing that - the reverse could be a problem, inflation will rise and rates too. People have short memories and if easy credit returns so too will sharp increases in property values. The property market is driven by supply and demand over the long term and that's always going to drive prices up in the U.K. In the short term though - like the period we saw between 2005 and late 2007 easy credit was a bigger driving factor; creating the property bubble. Property owners who released equity in 2007 to buy TVs and cars were doomed. Those that reinvested the equity in more property or other solid investments like gold or fixed income securities are laughing. You don't get something for nothing as they say.
Tim Fawcett  

Hi Tim

It's good to have an former consultant from The Money Centre here talking sense, I agree with pretty much everything you've said. I'm not sure why you think there will be a lot of QE money sloshing around in the system though, please explain.

How's the financial services markets in the Far East by the way, I take it you are still there?

I don't think the days of easy credit will be returning anytime soon.
I think we are in for a lost couple of decades like Japan; which still hasn't recovered.
However the Japanese seem to have got by with 0% interest rates and growth of about 1% a year I think.
Until lenders reduce substantially the deposit requirements property will be going nowhere for normal residential purchasers.
The overhang of debt for most people is so extreme it will take years before they will have paid it down.
Essentially the country and people spent more money they didn't have than the Second World War cost us.
We didn't finish paying WWII until about the late 1990's.
Banks are running scared to the point where they are efectively useless for the purposes they should be facilitatiing.