The great interest rate rip off part 1

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Mortgage lenders court borrowers with savings | | Guardian Unlimited Business

 

Wealthier Britons are combining savings in their bank accounts with their mortgages to cut the cost of monthly home loan payments, according to research by the Council of Mortgage Lenders.The report said the number of people opting for the new-style offset mortgages had increased by 50% to 170,000 in 2006. By contrast, standard mortgages increased by just 15% compared with the previous year, said the CML report.

The sharp growth in sales of offset mortgages to 7% of all new lending showed how homeowners were looking to save money after five interest rate hikes in 18 months, said the CML. The main advantage of an offset mortgage, according to the CML, is that it offers lower total interest payments and a shorter mortgage term because the interest is charged against a reducing balance.

 

You mean it's the lower income earners who are footing the bill for inflation!!! Those pesky poor always causing problems for the rich.

 

I wonder if the BoE has any data on which income earners it's interest rates affect the most??? My money is that it's the low income earners who are hurt the most?

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North-south divide will narrow but not rich-poor gap, says report | | Guardian Unlimited Business

 

Britain's economy is likely to see a better balance of growth between regions as the traditional divide between northern manufacturing and southern services blurs and more companies opt to move out of the overcrowded south-east and London, according to a leading City economist.However, the gap between the richest and poorest could become worse, according to Roger Bootle, chief economic adviser to professional services firm Deloitte and Touche. Writing in the latest issue of the Deloitte economic review, Mr Bootle argues that the UK economy is seriously unbalanced, with London and the south-east outstripping other regions, especially the east Midlands, the north-east and Wales, which have been disproportionately affected by the decline in manufacturing's share of the economy.

 

We'll the interest rate rises certainly aren't helping the poor!!!

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Old worries, new problems | Special report | Guardian Unlimited Business

 

Fashion is not the only business to go in for revivals; macroeconomists, a clan more into calculus than kitten heels, are having an early 80s moment. Sterling is at its highest against the dollar since 1981, while bankers think crude oil will soon be at $95 a barrel, which - adjusting for inflation - would be higher than it was when the Iran-Iraq war began. And, judging by the sleepless nights money supply seems to be giving the Bank of England, even monetarism - which slipped out of fashion long before Duran Duran ever did - is on the verge of a comeback.

The early 80s may have been a bit of a fashion embarrassment; economically, they were an outright disaster. The UK economy was less Smash Hits than smashed-up: high unemployment and low growth (even recession), yet inflation remained high. No wonder that the return of some old macro-clouds has caused more than a few to worry.A strengthening pound is bad news for British exporters, who will find it harder to compete against foreign rivals. Trouble in a single country is one thing; rising oil prices have grave implications worldwide. In May 2004, Gary Becker - Nobel laureate, Chicago professor and all-round economist cum laude - warned of the effects of dearer crude. Oil could hit $80 a barrel, he wrote, "that would derail the world's economy". Crude is almost at $80, yet that together with the strong pound have not caused unrecoverable damage to the UK.

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Still, no phrase in economic argument rings so false as "it is different this time". James Hamilton, an economist at California University, has shown that oil spikes caused nine out of the last 10 US recessions. It would be foolish to think we could escape the shackles of economic history. We may have outsourced much of our industrial production - and with it commodity inflation - to developing countries, but it is returning as higher goods prices. This is one reason UK interest rates have risen five times over the past year - and may go further yet. The pressure on our economy this time comes not from industry but from consumers. The UK economy may still hit a rough patch, but how and when is harder to puzzle out than that other gadget of 1980, the Rubik's Cube.

It's just such a good job that the MCP know what they are doing!!!

 

 

 

Interest rates will combat/fix all problems the economy is facing.

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http://www.dailymail.co.uk/pages/dmstandard/frame.html?in_bottom=http:%2F%2Fwww.thisismoney.co.uk%2Fnews%2Findex.html%3Fin_page_id%3D2&in_page_id=1804

 

The housing market will shudder to a virtual standstill next year as aggressive interest-rate hikes finally start to bite, a leading forecasting group has warned.

Unrelenting rises in house prices are finally expected to halt, dropping from well over 10% today to less than 1% by the end of next year, the Ernst & Young ITEM Club forecasts. Houses are currently overvalued by as much as 16%, it warns.

An interest rate hike to 6% will end the property market boom, ushering in a decade of stagnation, it says.

As householders are squeezed, the Treasury appears to be enjoying a boom.

Tax payments rose almost 10% in the first quarter this year, compared to the same period last year, dramatically outstripping growth in wages and salaries of only 5.1%.

 

I've certainly not had a 5.1% wage increase, but no matter I should pay for those that have. Interest rates the one boot fits all!!! Fair and indiscriminate.

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“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

Joseph Goebbels.

 

“A lie told often enough becomes truth”

Vladimir Lenin.

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Evacuations as flood waters rise to 'critical' level - Times Online

 

Residents were this morning being evacuated from low-lying areas of the city of Gloucester where the river Severn was threatening to overflow after the weekend's heavy rain.

Water levels across the worst hit areas of England were described as "critical", with nine severe flood warnings in place across central and western counties. With more rain forecast today, the floodwater is not expected to peak until tomorrow night.

Large areas of Oxfordshire were bracing for the floods to reach them as the huge volumes of water running off from the countryside threatened to burst the banks of the swollen Thames.

More than 90,000 gallons a second was coursing down the river, with the surge due to start reaching Reading this morning, followed by Maidenhead, Windsor and Staines later in the day.

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BBC NEWS | Business | Chinese cash fuels Barclays bid

 

The Chinese and Singapore governments have become key investors in Barclays, helping the UK firm to raise its offer for the Dutch bank ABN Amro. The China Development Bank (CDB) and Temasek, the investment arm of the Singaporean government, have invested £2.4bn (3.6bn euros) in Barclays.

And they will invest a further £6.5bn if the ABN takeover goes through.

Barclays has said it will now pay 67.5bn euros (£45.4bn) in cash and shares for the Dutch bank.

 

Does this mean the worlds centrals banks need to print more money to fund the buyout??

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Morgan Stanley predicting correction - Telegraph

 

Morgan Stanley has warned that current jitters on the global credit markets could spread to equity markets.

Stock market corrections - after an increase in the cost of debt - historically follow six months later, suggesting that the current rally on Wall Street and European bourses may be more fragile than it looks.

 

A study by the bank found that credit spreads began to widen on average six months before every stock market correction of 10pc or more over the past 20 years.

The current widening began in February, picking up speed over the past three weeks. If history is any guide, this could point to a global stock market slide as soon as August. Morgan Stanley's model suggests a 14pc fall, or 2,000 points off the Dow.

"This is not the first time that equity markets take their time to react to bad news," said the bank's chief Europe strategist, Teun Draaisma. "The fundamentals have deteriorated. Equities have reached all-time highs despite higher rates, wider spreads, higher oil, Chinese tightening, and a stronger euro.

"There is a widespread belief in continuation of good global growth without inflation. While we are not expecting a recession for another two to three years, we believe chances are high that this belief will be seriously tested soon."

Mr Draaisma added that ever clearer signs of "stagflation" would soon start weighing on confidence.

 

It does make you wonder what planet the MCP is actually on, rates rises take 1-2 years to feed into the system yet we have several in relatively quick succession and where meant to stay silent and not criticise. Luckily peoples houses are at stake............... Ahh slight problem with that isn't there???

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House prices hit by rate rises - Telegraph

 

House sellers have finally "flattened" their expectations after the Bank of England raised rates to 5.75pc earlier this month, the fifth increase since the Bank embarked on raising rates last August.

The quarter point rise coincided with the lowest rise in monthly asking prices so far in 2007, according to latest figures from property website Rightmove.co.uk, with average prices rising just 0.3pc in July. Last month, asking prices were up 0.8pc.

The cumulative effect of climbing interest rates has seen prices over the last three months rise at a quarter of the pace set in the previous three months - between January and April asking prices rose by 6.1pc, from £222,859 to £236,490.

However, between April and July they rose by just 1.5pc, to £240,001.

As a result, the annual rate of house price inflation has slipped from 13.2pc to 10.3pc - the lowest yearly rate since it stood at 9.8pc in September 2006.

While the London market continues to show signs of cooling, the annual rate of increase is "virtually double" all other regions of the country, at 21%

 

Further proof that the whole country needs the same rate, London has virtually double the house price increase compared to the rest of the country yet everyone has to foot the cost with increased interest rates. I've finally been convinced by the argument for the use of interest rates...... It's been obvious all a long, why couldn't I see it.

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First they put up interest rates and came to repossessed my neighbours house but I did not speak out because I was not a low income and could afford the repayments.

 

Then they put up interest rates again and they repossessed my cousins house and I did not speak out because I did not borrow excessively and live on credit.

 

Then they put up interest rates again and they repossessed my sisters house and I did not speak out because I was not in negative equity.

 

Then they put up interest rates again and repossessed my house because I lost my job to the recession.

 

Now interest rates are coming down but I have no home.

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BBC NEWS | Business | Oil giant BP profits down by 1%

 

UK oil giant BP has reported a dip in profits for the past three months. Replacement cost profit for the April to June period was down 1% on last year to $6.09bn (£3bn), but was an improvement from first-quarter numbers.

 

Only £3bn profit scandalous, I bet the shareholders are furious. They always need higher than the previous year profits, perhaps they should consider putting up prices to make more money, we can have higher inflation and another interest rate rise.

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BBC NEWS | Business | Oil prices fall on Opec comments

 

Oil prices settled below $77 per barrel in London, after comments from producer cartel Opec added to speculation that it might increase output. Brent oil, seen as the best indicator of global prices, settled 78 cents down at $76.86 per barrel in London as sweet crude settled at $74.89 in New York.

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BBC NEWS | Business | Bank must not 'squeeze economy'

 

The Bank of England's monetary policy committee (MPC) faces a balancing act, an influential forecast group says. The Ernst & Young Item Club says the strong housing market must be closely watched, but the MPC must not rush into "damaging" interest rate rises.

It is predicting strong GDP growth of 2.9% in 2007 and 2.5% for 2008, and expects interest rates to rise further.

But it warns the MPC must be forceful, but not "squeeze the economy too hard" so that it jeopardizes exports.

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US states plan bailouts for troubled borrowers - Times Online

 

American states such as New York, Massachusetts and Ohio collectively will extend more than $500 million (£245 million) in bailouts to homeowners struggling to meet loan repayments in an attempt by officials to prevent worst-hit neighbourhoods from declining amid repossessions.

With more than 700,000 American households set to lose their home this year and growing impatience with the federal Government’s response to the mortgage meltdown, individual states are moving to reduce the problem. Massachusetts has made the biggest commitment so far, setting up a $250 million fund to prevent about 1,000 “delinquent” borrowers from losing their homes. New York is expected to announce a $100 million bailout in the next few weeks, which would help about 500 homeowners in the state.

Maryland, New Jersey, Ohio and Pennsylvania are also working on bailouts as they strive to prevent pockets of housing from being dragged too far down by a surge in repossessions, which can prompt a downward spiral as neighbours sell up and house prices plunge. Each state is structuring its bailout slightly differently, although none is thought to be funded directly from the taxpayer’s pocket. In the Massachusetts bailout, the state will raise a fund by selling, to private investors, bonds that will be used to refinance high-risk sub-prime mortgages into home loans that can be paid off over 40 years.

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Markets hold breath for fear of crunch - Telegraph

 

With credit spreads climbing, companies are postponing borrowing plans, but there are still no signs of a meltdown. Ambrose Evans-Pritchard reports

The debt markets have shut down across much of the world as investors wait to learn whether the US sub-prime debacle will set off a broader crisis in the $2.5trillion industry for structured credit.

Credit spreads on high-yield corporate bonds jumped yesterday, with almost identical moves in Japan, Europe and the United States, causing borrowers either to shelve plans to raise money or to abandon deals altogether.

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Worst June on record for public deficit - Telegraph

 

The Office for National Statistics had bad news for Chancellor Alistair Darling, just three weeks into his new job, when it revealed the worst public sector deficit for June since records began in 1993.

Public sector net borrowing - the Government's preferred measure of the public finances - was £7.4bn last month, above expectations for borrowing of £6bn. The ONS said higher local government borrowing drove the figure up but added that much of the data in this area was still provisional.

Howard Archer, economist at Global Insight, said: "This is not yet a major problem for [Mr Darling], but it indicates that he will need economic growth to hold up well over the coming months if the Government's fiscal targets for 2007/2008 are to be met and there is a serious risk that higher interest rates and increased debt levels could eventually slow consumer spending markedly and undermine tax revenues.

 

If the govt is borrowing more money and interest rates are going up does this mean the taxpayer gets to foot the bill?

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UK growth 'seriously skewed' - Telegraph

 

The growth of the UK economy is too dependent on the booming financial services market, says a report by the influential Ernst & Young ITEM Club.

Peter Spencer, chief economic adviser to the ITEM Club, said: "The economy has been far too skewed in favour of financial companies."

Business and financial services make up 28pc of UK GDP but make up more than half the growth in GDP.

"The Bank of England has only got one club in its armoury - that's the short- term base rate," said Mr Spencer. "That's not very effective against these kinds of industries, which borrow long term in the financial markets. [The base rate] is great for clobbering household borrowers and export firms but useless in getting at the hedge and private equity funds.

 

Again highlighting what folly it is to have a single interest rate for the entire economy, but the BoE and MCP think a one boot fits all approach is effective economic management in the 21st century, where so lucky to have such forward thinking people in charge of our economy, luckily no one's houses are at stake!

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60% of UK wealth is tied up in homes | | Guardian Unlimited Business

 

The increasing dominance of the housing market in the British economy was revealed yesterday when the government released figures showing that 60% of the country's £6.5 trillion wealth was now tied up in property.In its annual snapshot of the UK's financial and non-financial assets, the Office for National Statistics (ONS) said the cost of buying the country on the open market had risen by more than 5% - a £326bn increase - in 2005.

The ONS figures show, however, that the increase was more than accounted for by the market value of Britain's housing stock, which has risen by more than two and a half times during the property boom of the past decade. The Halifax, Britain's biggest mortgage lender, says the average cost of buying a home was well under £100,000 when Labour came to power but is now nudging £200,000.By contrast, in 1948, the year when the run of ONS data released yesterday began, the average price of a property in Britain was less than £2,000. Adverts in the Guardian in July 1948 show that a detached house in Blackheath, London, complete with garden and orchard was on the market for £3,000. Today, potential buyers are looking at a price tag in the region of £1.5m.

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http://www.bankofengland.co.uk/statistics/rates/baserate.pdf

 

3 Aug 4.75

5 July 5.75

 

5.75/4.75 = 1.2105263157894736842105263157895

 

This effectively means that the BoE has produced a whopping inflation busting increased 21% in the space of 12 months!!! Slightly higher than the 2% inflation target given to it by the government.

 

Clearly if interest rates are included into the inflation figures they need to be weighted quite highly in the statistical sense as they do take up the vast majority of the household budget. What on earth would this mean for wage demands if they where added?

 

July 10 2003 the interest rate was at 3.5%, 4 years later 5.75%.

 

5.75/3.5 = 1.6428571428571428571428571428571

 

So that means a 64% rise in interest rates in 4 years, none of which is helpfully included in the actual inflation figures which are used to negotiate wage demands. Even more amazing no economist appears to comment on this fact it’s just quite happily brushed under the carpet, hopefully no one will ever realise.

 

Luckily no one has spotted the flaw in the system.

[elsinore]

Purely in the interest of balance IRRO,

 

4th June 1998 7.50%

10th July 2003 3.50%

 

a decrease in 5 years of 53%

 

Els

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Quite correct Els overall over the last decade there has been a decrease in the actually % base rate from the BoE.

 

However the size of mortgage loans have over that period have substantially increased, which means purely looking at base rates say even over the longer period of 20-25 years does give a very misleading picture.

 

If fact you could say there's a paradox, even though the % rate has gone down in the last decade the cost has gone up in real terms because of the increases in the amount borrowed.

 

As noted before the BoE are only concerned with price increases over the last 12 months, in terms of wage bargaining everyone looks at prices over the last 12 months, so what happened prior to that according to the logic of the BoE is irrelevant.

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BBC NEWS | Business | Housing woes hit US share markets

 

US shares saw their biggest drops in more than four months as worries about the housing market increased. The Dow Jones index slipped by about 220 points or 1.6% while the tech-heavy Nasdaq shed 1.9% - the biggest point losses since 13 March.

However analysts said that the retreat from near-record highs was "logical" as some investors took profits.

Struggles at firms linked to US housing were a reminder of the problems in the sector, analysts said.

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BBC NEWS | Business | Card penalties 'hit one in four'

 

One in four credit card customers has had to pay a penalty fee in the past year, a survey suggests. Customers pay out an estimated £230m a year in penalty fees, says financial website Moneysupermarket.com, which conducted the survey of 2,116 people.

Penalty fees are imposed by card firms when customers miss a repayment.

Last year, the Office of Fair Trading (OFT) said card penalty fees were "disproportionately high" and imposed a £12 fee cap on card providers.

Since the price cap was imposed all providers have lowered their penalty fees.

However, the fees are still providing a source of income for card issuers.

 

No doubt the BoE interest rate rises will help to fuel more bad debtors and increased penalty fee profit for the industry, which will help those who are already struggling!!

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Rail fares to soar as government slashes funding - Times Online

 

Rail passengers face above-inflation fare increases every year for the next decade after the Government announced yesterday that it was cutting public funding for the railways by 50 per cent, or £1.5 billion a year.

Passengers will be forced to pay a much higher proportion of the cost of running the network and in return will receive only a modest increase in capacity. The Government published a 30-year rail strategy yesterday that ruled out a new high-speed line and double-deck trains and made few specific commitments for relieving overcrowding, among them that the number of carriages will grow by 1,300, or about 13 per cent, by 2014.

Upgrades of the Thameslink route and bottlenecks in Reading and Birmingham will largely be paid for by increasing all fares above inflation every year until at least 2014. Season tickets and saver tickets will rise by 1 per cent a year in real terms, and unregulated fares, which account for 60 per cent of the total, will rise by 3 per cent or more a year.

 

I bet Mystic Merv remains silent on this, not helping you to meet your 2% target is it. It's just such a good job that transport isn't an intrinsic part of the economy.

 

They are trying to price people off the roads, trying to price people off the trains, just how exactly do these geniuses expect people to get to work? There are bottlenecks in the system because everyone is trying to get to the same place at the same time because everyone is trying to get to WORK. If everyone is working 9-5 then clearly this is going to cause a bit a problem in the transport network!!!

 

I wonder if these increases will get massaged out of the inflation figures!!!

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Shares dive as fears of US credit risks spread - Times Online

 

Shares fell sharply on both sides of the Atlantic and the dollar tumbled to a 15-year low against leading currencies yesterday, as world markets continued to be shaken by fears over US sub-prime mortgages.

The Dow Jones industrial average sank about 100 points as concerns grew that weakness in risky mortgages was spreading to supposedly safer prime loans, potentially sparking a credit crunch in the US economy.

Bill Gross, the influential manager of Pimco, the world’s largest bond fund, gave warning of a “sudden liquidity crisis” in junk bonds as lenders took fright at soaring defaults.

Traders sold off dollars, pushing sterling to a 26-year high of $2.0655 and the euro to a record $1.3853. The FTSE 100 fell by 125.7 points, losing more than £35 billion of value, to close at 6,498.7, as markets tracked changes in New York amid confusion over the near-term path of interest rates.

 

Just think the markets still have to be shaken yet by the probably interest rate led repossessions here. Anyone with a endowment about to mature starting to get worried??