Mortgage Confusion

25
Posted 2nd Aug
Hi all

Just wanted to drop a thought I had and was hoping to spark some kind of debate....


I'm currently renting with my girlfriend and we are keeping an eye out for a suitable property as our first house. we're looking at a budget of around £300k.

With all of the banks offering low rates initially and then pulling back and getting rid of 90% LTV mortgages altogether or still offering them but at a much higher rate, it got me thinking....

Bank of England is lending to banks at a rate of 0.1%. Depending on the bank you as a consumer choose to borrow from, you're looking at anywhere from 1.5-2.5% (for argument's sake) for a 90% LTV. many banks are no longer offering high LTV mortgages which will obviously make it harder for those who are FTB and will have a knock on effect on new homes being developed/sold as we've been promised would be happening (I take everything the govt promises with a heavy pinch of salt).

so the question is - why have the banks at all? if the bank of England is still making profit (0.1%) lending to banks then why not cut out the middle man altogether. let's say BOE instead lends directly to consumers at 1%, they're still making a profit and they can have better control over the rate of mortgage applications being approved and boost overall confidence in the housing market.

am I being thick or is that a much better alternative? agreed that is is a very left and borderline socialist approach but I don't see the downside here... the banks will continue to make profit from their other investments and just back out of the property market or at least forces them to compete with BOE if they want a piece of the pie?
Community Updates
Ask
Top comments
BOE can't be bothered with small fry consumers and won't want the red tape that comes with chasing those that have defaulted. Offload that to banks and just get take the 0.1% profit.

That's my view of it.
Edited by: "MadeDixonsCry" 2nd Aug
25 Comments
BOE can't be bothered with small fry consumers and won't want the red tape that comes with chasing those that have defaulted. Offload that to banks and just get take the 0.1% profit.

That's my view of it.
Edited by: "MadeDixonsCry" 2nd Aug
“Why have the banks at all?” - you trying to change the world here bro 🔥 🤛
It’s just the same as saying why do Sony sell TVs at curry’s. They could make more profit selling direct to the public. Basically the hassle, regulation etc is not worth the hassle to them.
The amount of staff the BoE would have to employ to setup, administer, and chase all those mortgages would mean they would be have to charge a lot more than that for each mortgage.
Edited by: "ArcadeAssassin" 2nd Aug
MadeDixonsCry02/08/2020 14:09

BOE can't be bothered with small fry consumers and won't want the red tape …BOE can't be bothered with small fry consumers and won't want the red tape that comes with chasing those that have defaulted. Offload that to banks and just get take the 0.1% profit.That's my view of it.


I see where you're coming from but if it's not too much red tape for regular banks then why would it be too much for BOE. Obviously that's not an overnight transition and they'd need to set up call centres and ways for customers to get in touch as well as the relevant "debt chasing" departments.

It's obviously set up for a capitalist world at the moment to put a middle man in place and hike up the costs but at what point does that model fall over? It quickly becomes a race to the bottom of savings and confidence isn't being passed onto the consumer.
Jump_Out_Gang02/08/2020 14:17

“Why have the banks at all?” - you trying to change the world here bro &#x …“Why have the banks at all?” - you trying to change the world here bro 🔥 🤛


Hahaha its got to happen at some point though! It's quickly becoming a race to the bottom of banks are getting loans from BOE at 0.1% and aren't passing some saving onto the consumer or even giving loans to the consumer at all.

It'll be embarrassing for the government given that they're so invested in property prices and the market in the UK (help to buy etc) so at point you have the straw that broke the camel's back.

Giving myself Corbyn vibes
Wadda02/08/2020 14:31

It’s just the same as saying why do Sony sell TVs at curry’s. They could ma …It’s just the same as saying why do Sony sell TVs at curry’s. They could make more profit selling direct to the public. Basically the hassle, regulation etc is not worth the hassle to them.


Kind of but not the same. Selling TVs and PlayStation's isn't critical to the economy and overall stability of the country. The housing market is - that's why I suggested Boe steps in for mortgages only and leaves personal lending and whatever else to the banks.

But I do get where you're coming from - how much headache is too much headache before everything falls over because the people you're relying on to boost the economy and start spending again aren't able to..
B.O.E & ‘high streets banks’ are like chalk & cheese really though right?
ArcadeAssassin02/08/2020 14:33

The amount of staff the BoE would have to employ to setup, administer, and …The amount of staff the BoE would have to employ to setup, administer, and chase all those mortgages would mean they would be have to charge a lot more than that for each mortgage.


Agreed. It's not an overnight transition and it definitely means they won't be lending at 0.1%. but given that many FTB can't even get a 90% LTV mortgage (my rent is 1k a month for a 2 bed unfurnished flat in Didcot - it's therefore very difficult and a slow process to save for a bigger deposit.) Some banks are now requiring a 15% deposit which doesn't sound like much but if you've saved for 10% for many years (£30k) then all of a sudden you're having to save an extra 50% just to meet the minimum deposit (£45k).

It certainly doesn't boost confidence of buyers. Even if BOE stepped in and offered 90% LTV at a comparable rate to the big banks it's at least increasing availability of 90/95% LTV mortgages to FTB's
Jump_Out_Gang02/08/2020 14:41

B.O.E & ‘high streets banks’ are like chalk & cheese really though rig …B.O.E & ‘high streets banks’ are like chalk & cheese really though right?


I'm sorry I don't understand the reference/metaphor
h3dshot02/08/2020 14:46

I'm sorry I don't understand the reference/metaphor


Master & slave then. B.O.E is basically the government & vice versa - the relevant families sat at the heads of their tables are too busy eyeing up plots of land in Iran and/ or North Korea to worry about lending @h3dshot & his gf a few hundred grand
Jokes. Lol. What are those 3 black SUV’s doing on my driveway .. help
Edited by: "Jump_Out_Gang" 2nd Aug
Jump_Out_Gang02/08/2020 14:52

Master & slave then. B.O.E is basically the government & vice versa - the …Master & slave then. B.O.E is basically the government & vice versa - the relevant families sat at the heads of their tables are too busy eyeing up plots of land in Iran and/ or North Korea to worry about lending @h3dshot & his gf a few hundred grand


Aha yes ok I'm with you

Maybe I just need to bide my time and wait for a revolution
h3dshot02/08/2020 14:54

Aha yes ok I'm with you Maybe I just need to bide my time … Aha yes ok I'm with you Maybe I just need to bide my time and wait for a revolution


Brother. Put down your You are the revolution 🤜 🔥
This is business, rules of the game where the customer pays the high price. Always the case and will be so we all have to accept and find the best deal possible. No ifs and buts!
rimalpatel00702/08/2020 15:08

This is business, rules of the game where the customer pays the high …This is business, rules of the game where the customer pays the high price. Always the case and will be so we all have to accept and find the best deal possible. No ifs and buts!


Well you’re not invited to mine & @h3dshot s afternoon tin foil hat tea party
Jump_Out_Gang02/08/2020 15:23

Well you’re not invited to mine & @h3dshot s afternoon tin foil hat tea p …Well you’re not invited to mine & @h3dshot s afternoon tin foil hat tea party


Hang on a second.. we can invite him provided he covers the cost of furniture and food for all three of us
h3dshot02/08/2020 15:43

Hang on a second.. we can invite him provided he covers the cost of … Hang on a second.. we can invite him provided he covers the cost of furniture and food for all three of us


Okay but tin foil doesn’t grow on trees so he’s gotta cover the costs of a roll of that too
h3dshot02/08/2020 15:43

Hang on a second.. we can invite him provided he covers the cost of … Hang on a second.. we can invite him provided he covers the cost of furniture and food for all three of us


Hahahaah of course, we're not running a charity here...

We're fancy too - has to be Waitrose tin foil. I'll accept nothing less.
The Bank of England is the lender of last resort for the government, not for anyone else, because only the BoE is authorised to literally create more money. And it simply cannot print as much as it wants as this has inflationary and other negative effects. Lending directly to consumers also creates a conflict of interest because then the BoE loses its independence and gets regulated by the FCA, which essentially puts it under Government control / manipulation.

Secondly, running a consumer banking business isn't cheap - you need staff, infrastructure, there is a real cost of capital (and no, it will be higher than 0.1%), there is the cost of regulatory requirements, costs for any potential bad loans, etc. And all this requires shareholder capital, which in turn creates a profit mandate. The bank also cannot lend out every penny it has borrowed from depositors, or received as capital.
Can't you just see the newspaper headline "little timmy made homeless by cruel government"
His mum said timmy needed a 3 month holiday in the algarve to get over his recent tooth ache.
Valid question, we are here because of years of diminishing Building Societies. Building societies sole purpose was to borrow cheap and lend with a margin on top. Banks in UK now are multifunction entities where they have to be in black one way or another (losses in one department have to cover by other departments).

Go to Germany where they have lots and lots of local banks (building societies) and mortgage/business credit is much cheaper.
I am still reeling at £300k for a house - I am so out of touch these days!
joesmum02/08/2020 19:27

I am still reeling at £300k for a house - I am so out of touch …I am still reeling at £300k for a house - I am so out of touch these days!


Hahaha that's for 2/3 bed in a nice-ish residential area in Reading. Wait till you do a quick price check for London 😜
joesmum02/08/2020 19:27

I am still reeling at £300k for a house - I am so out of touch …I am still reeling at £300k for a house - I am so out of touch these days!


You might only get a run down 1 bed former local authority leasehold flat around my way for that!
Post a comment
Avatar
@
    Text