If the base rate is 0.5% Why is my mortgage 5.9%???

[DJKillaQueen]

Well also the target market for credit card providers has changed. They prefer revolving customers, those who only pay the interest each month, whom they reward periodically with an increased credit limit. I've seen twenty somethings, who've never worked, be given credit cards with 20k limits! Yet the highest limit I ever got was 2.5K when I was earning 35K a year.......so the banks need their heads testing too.

[Loz]

Actually DJKQ, that's always been the way. People like you and I make little profit for the banks, but they put up with us it increases the ubiquitousness of the card.

People who pay the minimum monthly amount is where the money is. Ratchet up the limit, the more profit. This has to be balanced out with the number of defaulters. Complete defaulters are relatively rare and credit scores mean that the 'mistake' is not made twice.

It's evil, but people swarm to it like lemmings.

[casper]

going back to the original question it is unfortunately a consequence of higher medium term costs of financing for banks due to credit quality concerns along with the fact that banks do have on their books significant assets priced at base rate which at present is unhedgable, therefore they need to make up the difference.

the spread between where banks can offer mortgages and where they can hedge their exposure (the interest rate swap market) has widened considerably over the last couple of years from 0.10% (pre crisis) to north of 2% depending on the credit quality of the bank. Clearly the increase in the spread in the mortgage market along with the increase in the spread between deposit rates and lending rates is an outrage. You have to remember though that the government and the bank of england are happy to turn a blind eye to this as it is necessary for the banks to rebuild their balance sheets (profits) in order to not have to rely upon another state bailout. It is essentially an unspoken extra tax on the population to bail out the banks. I am myself a banker and even i think that in particular the uk clearing banks are getting an enormous free ride and that when their balance sheets are deemed to have been rebuilt these spreads should be forced lower through regulation or specific taxation.

[garden man]

Wow

Thank you all,I have learned a great deal,but being a gardener i am sadly ignorant of the ways of finance.If I understand at least some of what has been said,when we borrow money from our bank/building society,they then much as bookies lay off that money to other organizations,that in the past have failed to repay,as this money is mixed with bad debt.{I think bookies repay each other,or they wouldn't be in business.I cant understand how hedging is legal,given some of the more well known examples,whereby you buy shares or a currency with someone elses money,then do everything in your power to ensure the outcome you desire,including,lying,cheating,or conning! The result of this is,our financial organisations dont trust each other,therefore,dont loan eachother money causing a squeeze or crunch on money supply.We the people then loan the the banks,who if they were any other business,wouldn't be in business,vast amounts of money to bail them out.Bullying chairmen,or men with short term city reputations,are encouraged to leave said institutions,with full pockets of us the peoples money.No one as a consequence learned anything.We learn most from our hardest lessons.

What money they do put back into circulation is,for various reasons {including greed,which never went away}is now reluctantly loaned back at way over base rate,consequently,we the people are not able to put any money we may have saved back into the economy.We have to wait for the financial institutions to recover at our expense,in order for them to continue doing what they do best!

Perhaps if our government of whichever hue wasn't so enamoured of the city as a major money earner,they might invest some of our money into industry,which when we put our minds to it are very highly thought of throughout the world,so much so,they bought most of it!!

Recently we discovered communism didn't work due to greed from those at the top. If the banks weren't bailed out,what chance capitalism ? For me it's time to think who I bank with,or in which country I bank or if I bank at all.To learn my lesson and never ever borrow money again.

My building society did reduce my interest for a couple of months,but raised it again later last year,telling me market forces were responsible. Due to poor income over winter,they tried to repossess.Despite an offer to cash in my pension to pay my arrears,they still continued their action.i have managed to get a court order & await the courts decision on my offer,not theirs.

Thank you all once again for your insights,they have helped me understand a lot more.

As for the financial institutions,those lessons they need to learn will just come up again.You tend to get back in life what you put in.

Gardenman

[Karrie]

[Deleted] Safety reasons

[njc97]

Garden man - if you want an example of hedging being legal, desirable and for something you can understand, think about farmers hedging crop prices:

In the Spring, the price of their crop is high. So the farmer borrows some money to buy seeds and fertilizer, thinking they can grow more crops to make enough money to live off. Now if crop prices fall sharply by the Autumn, then the farmer won't be able to sell their crop at a higher enough price to make a profit, so they'll starve. Instead they buy a derivative which means that if crop prices go down, the derivative will pay the farmer money. This way they are hedged against falls in crop prices.

Back to the original post - if it's a building society, then it isn't greed - they don't have shareholders so any profit is shared amongth the members, i.e. you. If you want a "people's bank" then why not try the co-op? Of course their loans aren't as cheap as other banks but that's because the evil, profit-making banks offer a better deal for consumers.....

[garden man]

Thanks njc97

You have a point,however as a farmers son,the price is set when speculators bet on the outcome of the crop,good or bad or Tescos tell you how much they are going to pay you! We have a current example of a speculator who has cornered most of the cocoa market and in so doing can set the price for this product,sending the retail price soaring.The farmer sees none of this extra profit,but has sold his crop.Dont Know Too many farmers who deal in derivatives,not tennant farmers anyway.We live in different times,certainly since the big bang,banks are no longer just banks & you dont hear the word stockbroker anymore.

Re building societies,if what you say is true,then why the 5.9%,I'm certainly not sharing any profit at that percentage! So I can only surmise they are trying to claw back what they lost.Not all banks building societies & financial institutions are greedy,but enough to nearly bring the country to its knees!!

[SteveT]

Not all banks building societies & financial institutions are greedy, wrote Garden man.

List those which aren't greedy!

No1.............................

Somehow I do not think you will reach No2.

A good derivative at this moment would be a printing press,

to print ?50 notes to help see you through the times ahead.

[Jeremy]

Building societies are owned by their members, Steve. So who is greedy... the management? The employees? The customers?

[Brendan]

All of them.

[expat]

Brendan Wrote:

-------------------------------------------------------

> All of them.

So where did you put the ?30000 you saved up for the house in Surrey? Under the pillow?

[SteveT]

:)):)) Brendan.

Indeed, all of the clowns that took us to the brink of financial collapse proved to be greedy and shortsighted,

possibly 'blind' might be more accurate.