BoE rate down to 3.0%

[AcedOut]

Well, as someone who has a relatively large tracker mortgage in comparison my savings, this is great news for me in terms of monthly cashflow. My mortgage has almost halved in the space of a few months. However, what about the wider and longer terms impacts of this rate cut? Will the sterling plummet, making holidays and imports much more expensive? What about inflation? Those net long savings?

Thoughts...

[mockney piers]

Yeah, I just went down to Fopp and splashed out in celebration, but I must say my first reaction was what the hell?!?!? An unhealthy dependency on the housing market as the engine of consumer confidence, spending being the means to growth, was what got us into this mess in the bloody first place.

Seems like a very cynical short term fix that will do nothing to alleviate the underlying issues, it sure as hell won't encourage saving.

Back to the drawing board Brown.

[karter]

Well, at least they are *trying* to sort out this economic crisis. Personally, i think it is good news. Pay off your loans and mortgage quicker if you can.

[Asset]

I've said it before and been disagreed with, but I think the rates should be going up not down.

We are now in a situation where inflation is at around 5/6% and interest rates are at 3%. Ummmm WTF?

Let's just spend our money, rack up loads of credit, get ourselves in hock. Great. Wasn't the credit crunch blamed on the greed and overextending of credit? What does cutting interest rates say?

[mockney piers]

Brown was *trying* to eliminate boom and bust, the banks were just *trying* to turn lead into gold by selling sub-prime mortgages.

Trying isn't enough, doing something sensible is. I'm not happy about mortgaging future generations (including ourselves frankly) by saddling them with debt the size of the half the entire annual national wealth generation just to underpin a bunch of banks who were behaving irresponsibly, allowing them to lend us our money at interest and squeezing credit in order to achieve this and go off on effing jollies.

I don't like it but I understand it; however this is just pure short-termism at it's worst.

Might be time to actually produce stuff again rather than all survive on selling each other stuff.

I'm not a great fan of Keynsian spending in order to stimulate the economy with all its inflational pitfalls, but lets face it, all that wonderful infrastructure put in place last time we did it is absolutely falling apart, and the private sector has hardly come to the rescue, just grown fat over letting it rot and getting the taxpayer to bail it out every time.

Maybe it could help stimulate the (re)birth of a really modern, competitive and technologically advanced manufacturing sector, one where the the margins are to be found in ingenuity (investment in sciences and learning please?) and advancement, rather than the cheap labour the west has offshored it's manufacturing capacity to elsewhere.

Dropping interest rates is going to achieve how much of the above? (well apart from encouraging capital investment, god only knows the banks should relax their hold on credit as it is after all our money they're lending out)

[karter]

It says that with the extra cash that you have every month pay off your debts quicker rather than over spending on over priced tat.

[mockney piers]

I'm with Asset, discourage easy unsecured credit and encourage saving.

Work toward ending dependence upon the housing market for consumer confidence and growth, if just to end every dull:

'Bird Flu to kill millions, house prices drop' headline.

[Jah Lush]

Just another way of pissing our money up the wall. I need to pay off some debts and the quicker I can do that then I've got more money to spend down the pub and hoorah to that.

[microbite]

I'll second that Jah!

But whether or not the mortgage lenders are going to pass on the interest cut to the average customer (non-tracker) is another thing, I'm due for renewal of my deal and almost signed up for a 3 year fixed rate at 5.6% just so that I knew exactly what was going to be going out of my account for the next few years, and so I could budget, but decided to hold off, (my current deal (discounted repayment mortgage )ends the end of December and the bank (in hindsight quite slyly) phoned me up to offer me all manner of deals and tried to encourage me to sign up early by saying they expected the interest rates to be going up and in this current financial climate blah, blah, blah, so that all could be in place when my current deal ends, glad I waited now, (don't like pushy salespeople), and can hopefully benefit from this drop in interest.

BTW (how on earth can banks justify setting up fees of ?999 charge for setting up a new deal within a current mortgage I already have with them? It's not a new mortgage, and they are not borrowing me any 'new' money?)

[mockney piers]

"BTW (how on earth can banks justify setting up fees of ?999 charge for setting up a new deal within a current mortgage I already have with them?"

How else will they pay for the christmas bash in the current climate?

[Asset]

I was quoted fees of ?1,700 for a new mortgage recently!! In the end I went with a higher interest rate with no fee.

Are the banks passing on these rate cuts? Well, one bank today has said they will (the first time since rates started going down) But you can bet that they cut the savings interest rate PDQ before the lending rate. Bastards.

People should be encouraged to live within their means, we don't need that new gadget or those new boots. Probably those items are not produced in this country so the UK economy doesn't see the benefits anyway. Let's face it, once people have been encouraged to put a bit of money away - thus putting money into the banking system and getting the reward of a decent interest rate - they'll spend it in the end.

What's the point of saving money if inflation eats it away? Oh hang on, the government's debt also gets inflated away, funny that!

[AcedOut]

Inflation is looking set to come down slightly at the moment anyway, what with energy and house prices amongst other things falling (energy companies passing this on is another matter). So I see the rate reduction as a recessionary rather than inflationary move. I do feel for savers though, but for debtors this should be seen as an opportunity to pay off debt before the inevitable increase. Although rates are lower, it's still going to be more difficult to borrow money due to default risk - higher unemployment as one example. Means testing will (or certainly should) be more stringent, so I don't necessarily see this encouraging more people to borrow (more). I do feel that the government should do more to regulate the amount a person is physically able to borrow, but this is no simple matter. Lenders need to be more responsible, which in the sort term will not be an issue - they can't afford not to be!

It's a complex balancing act, but I'm slightly positive (personal factors aside) as to this move. At least for the short to medium term.

[AcedOut]

Btw - If you have a tracker mortgage, it might be worth checking with your bank to make sure it's not collared (has a minimum rate). Many of them are!

Collared trackers

If you're with LloydsTSB/C&G, then you're ok. There is no collar.

[Keef]

We are in the process of getting a mortgage, and had completed an application for a tracker. Today our broker claimed to have just received it, and said we might be out of luck, as the bank had just contacted her saying it was being withdrawn at the end of today.

Was hoping to save a few quid in the coming year which is going to be a very very hard year, but alas we seem to have missed the boat... To be fair to the broker (who I am convinced must have had the application by yesterday at the very very latest), we probably shouldn't have let it sit uncompleted on our table for a fortnight :-$

I certainly know how to pick an interesting time to join the property ladder!

[AcedOut]

Keef - don't forget that brokers don't cover the entire market. For example, HSBC are still offering relatively good tracker mortgages and they never use mortgage brokers - there are others, but I forget which off the top of my head. The spreads (rate over BoE) are starting to creep up now though. Back in the days I was looking into these things, you were still able to get BoE + 0.19, but you're looking at BoE + 2.0 at the moment. Just make sure you avoid trackers with floors/collars. And sometimes it's worth paying a larger fee to get the best rate/deal over the term of the mortgage.

TBH, I'd even consider looking at long-term fixed rate deals now, but I've no idea how competitive those are at the moment. I doubt they're great, but if I could get a 25 year fixed deal at 4.5% then I'd jump at it!

[Asset]

me too

[Jeremy]

The idea of lower interest rates is to encourage spending and investment, get some liquidity in the market, etc. It will also make it easier for people to pay their existing mortgages, hopefully resulting in fewer defaults and reposessions... that has to be a good thing (for both homeowners and banks). I think digging the country out of recession has to be a higher priority than returns on savings. Some will inevitably disagree (ie those with large savings), but you can't please everyone, and sometimes you need to look at what's best for the country as whole.

Anyway, as AcedOut says, inflation will start falling soon, because commodities are plummetting like a lead balloon.

[Keef]

Alas, the problem with buying through a scheme like this is that your options are limited. Going to get a 3 year deal out the way then we're free to do what we want and I'll be shopping around! On the bright side, the government will own 20% of our place, so if the prices do fall drastically, we can buy it back at the current market value.

[AcedOut]

Keef - sounds like a good deal.

Jeremy - agree with you. Right then, all my money on Pork Bellies!?

[lard]

Jeremy Wrote:

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

> The idea of lower interest rates is to encourage

> spending and investment, get some liquidity in the

> market, etc. It will also make it easier for

> people to pay their existing mortgages, hopefully

> resulting in fewer defaults and reposessions...

> that has to be a good thing (for both homeowners

> and banks). I think digging the country out of

> recession has to be a higher priority than returns

> on savings. Some will inevitably disagree (ie

> those with large savings), but you can't please

> everyone, and sometimes you need to look at what's

> best for the country as whole.

>

> Anyway, as AcedOut says, inflation will start

> falling soon, because commodities are plummetting

> like a lead balloon.

I think the people most likely to disagree (the prudent) are fed-up of bailing out those that always take (the reckless)

[EDOldie]

I can see savings rates plummeting. This is a crap day for ordinary people and a great day for the banks. Their existance is assured by the government and they can charge what they like for loans, and give very little to depositors. Well done Gordon and Alistair, they've taken you both for a ride.

[????]

I've been a long term 'gloomist' on the economy and for me this unprecedented move from the deeply 'conservative' MPC shows just how near we are to a catastrophic depression as those 'in the know' are belatedly only too aware....this is a gamble to stop mass unemployment and widespread bankruptcy - on a personal, corporate, municipal and possibly even national basis

[Asset]

They're talking about how it will affect the markets tomorrow. If it's anything like the rate slash to 1% in the states a week or so ago the markets will carry on dropping regardless.

[will dex]

the idea of the cut is to inject ?136 into households Xmas spend on the high st thus staving off big big problems. it was Last Chance Saloon to do this.

general feeling:-

Its not so bad yet - but it could be.

[lard]

Asset Wrote:

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

> They're talking about how it will affect the

> markets tomorrow. If it's anything like the rate

> slash to 1% in the states a week or so ago the

> markets will carry on dropping regardless.

Exactly - it won't do anything. There's no point turning the steering wheel and applying your brakes when your car is already plummeting down the cliff.

They should have done a few things a few years ago to avert this.

The problem was never interest rates or desire for loans, the problem was bank funding. This has now given even less incentive for depositors, which means banks may have even less to loan.