It's a "we must be seen to be doing something" knee-jerk reaction. In the past the accepted wisdom was that rate cuts took about six months to work their way into the economy, and this one may in fact achieve nothing, IMHO. If you can't afford the mortgage it makes no odds, as most, if not all of the cut will not be passed on to borrowers.
It only makes a real difference to companies whose loans are base rate plus X%, but they are not increasing their debt right now.
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Well, I am sitting here pondering what to do. 50% of my purchase orders are to the Eurozone, 10% US Dollar and the rest Stirling. some of my Euro suppliers who have also had sterling accounts are closing them so this means even more bank/currency costs to pay these suppliers.
I need to increase my prices by around 40%!!!! today just to stand still. I am also going to start to offer clients a discount to pay me in Euro's.
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It only makes a real difference to companies
It also makes a difference to me as well as I have base rate tracker mortgage :o)
Edited by movilogo on 05/01/2009 at 11:13
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It also makes a difference to me as well as I have base rate tracker mortgage :o)
Well I hope it does not make this kind of difference:
www.moneynews.co.uk/5927/natwest-mortgage-withdraw.../
www.dailymail.co.uk/news/article-1104070/Nationwid...e-
cuts-bid-protect-savers.html
Edited by jbif on 05/01/2009 at 11:23
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Being a property valuer and well as owning commercial investment property, the rater cut is of interest, but only as it ensures I get to keep more of the rent, and pay down debt quicker. However the stimulus it provides to go out and spend will take at least a year to kick in, so until then I am not spending. The rate cut will have minimal difference and is a useless act designed to look as though they are doing something.
If they simply left well alone for a while, I think things may well sort themselves out without baling out a load of rich and incompetent bankers (I know of what I speak - I deal with too many of them on a daily basis not to be angry at bank bail outs).
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> If they simply left well alone for a while
yup - its just another dip in the economic cycle. They happen about every 7 -13 years on average. Ok this one was fast to appear and its deep, but it was bound to happen sooner or later, but its not that much worse than the average - (madf will appear to tell you to build a nuclear bunker and sell your children tho) and it will clear.
Look at whats failing? Non traditional commercial banks, retailers who were risky for years, companies with large debt. Companies dont just fold, someone pulls the plug, usually a bank that is owed money and is not prepared to pump more money in.
ALL the companies that have high debt levels are at risk - nearly always due to borrowing money to finance a buy out. The stock market has found it base point below which it wont drop (about 3800 ftse) and soundly managed companies not based on huge debt will survive.,
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Something I discovered recently is that people with over £16k savings get no "dole". Daughters, both at Uni, have recently inherited (lucky them!!) a little over this amount from grandfather. For once, they have heeded our advice and put it into savings rather than buying new cars, clothes, iPods etc, with the intention of using it as deposit for a house as soon as they can (- given the current climate this seems a good idea)
However I can see them having difficulty finding a job when they leave uni, and then having to spend their inheritance down to the £16k before the State starts to help them out.
In contrast, Mrs S's company laid off a handful of people before Christmas, one of whom was a single mother (a lifestyle choice she'd consciously made). Mrs was quite upset over it, until she found that the lady wasn't that bothered as she would be able to go straight down the council and get housing and other benefits, and didn't seem to think she'd lose out too much by not working...
While I have no real problem with the latter, it contrasts strongly with the former, where to get anything you have to have nothing. And those who have managed their finances responsibly seem to be being punished.
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Smokie, if your daughters manage to leave uni without debt and with their £16ks intact, then they will have done brilliantly well, regardless of the degree grades that they achieve!
I'm having some difficulty in getting my head round the fact that we are being expected to save up to fund our old age/retirements at the same time as spending everything to save the economy. Those who are in debt are being encouraged to get further into debt while the sensible are being asked not to be so sensible???
I'm afraid I won't be spending my ever-devaluing pounds on a new car, though, not while the old chugging, whining, rusting Mondy can still drag me round.
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those who have managed their finances responsibly seem to be being punished
If people had saved instead of spending, there would have been less money in circulated in economics. The sole purpose of rate cut is to encourage people to spend more again ie. to kick start the economy from recession.
Those who complaint about savers being punished, I like to ask them where do you think you're getting your savings interest from? The banks invest money in stocks, real estate, business so that they can get a return on investment and then they pass some part of it to savings a/c holders as "interest".
If there is no new business, banks won't earn anything - so they can't pay any interest to a/c holders.
If you want higher interest, I heard that banks in Turkey offer 20% return. Anyone willing to put money there?
I put some money in Icelanding bank a/c (lured by high interest) and you all know what happened to that bank. Fortunately, I got my money back via Financial Services Compensation Scheme.
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While I understand your point about less borrowing = less money in circulation, I don't think it's in any doubt (is it?) that one of the main causes for the current situation is the ease with which credit was available, to both people and businesses, and the fact that both were allowed to over-commit themselves.
"If there is no new business, banks won't earn anything" - the banks are apparently very difficult to do business with right now, and that's based one one small businessman I know who said the bank is not providing the support he needs to keep going, and a friend who's daughter (who is a police officer earning a good regular wage) having trouble getting a not-very-high mortgage.
As for repaying people who lose because of a bad investment overseas - I really don't see the need. Still, done and dusted I suppose.
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Those who complain about savers being punished I like to ask them where do you think you're getting your savings interest from? The banks invest money in stocks real estate business so that they can get a return on investment and then they pass some part of it to savings a/c holders as "interest". Excuse my financial ignorance, as I could well have this all wrong but isn't much of the money used by the banks for their investments gathered from our savings and investments in their products? We getting a proportion of the profits that the banks / building societies make as interest.
Also, for many years we have all been encouraged to save to provide for a better retirement for ourselves.
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And those who have managed theirfinances responsibly seem to be being punished.
Our many years of "prudence", (a much overused and obviously pointless word from GB), no loans apart from a mortgage, few holidays, old cars, etc etc, have got us nowhere. The interest on our fairly modest savings which we hoped would boost our pensions and help give us an earlier and more comfortable retirement is now worthless.
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Prudence is in fact counter productive at times
Take the example of my dear departed grandmother, to cut a long story short at the end of her life she went into a carehome, a fantastic place no problems with them at all, however she had to sell her home when her savings ran out, if she had been peniless and living in rented property she wouldnt have had to pay a penny
Where is the logic in that
Edited by malden blue on 05/01/2009 at 12:35
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>She had to sell her home when her savings ran out - Where is the logic in that ?
If your g'mother had a home to sell, she had 'savings'. It isn't logical to claim that it should be inherited by her family, when other families aren't lucky enough to do that.
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So somebody who is prudent and careful, works their nuts off to buy a modest place ultimately, has it taken away to pay for care costs whereby if they had been irresponsible, smoked, gambled, drunk their money away the state would have picked it up the bill for being in the same home.
My plan will be retire, sell the house, rent a replacement one, have the time of my life (health permitting) spending my money on cars, holidays, women, rock and roll and if I need to go into a care home I hope the money is spent by then.
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That's correct Pica - welcome to the UK.
The only bit you forgot is that having worked hard yourself and saved a few quid, your kids will now need to go deep into debt if they decide to do well for themselves and go to University. Where as the drunks and layabouts on benefits - their kids will get it all free because you have some money and the others don't. And that is at the heart of what is wrong with this country and government. We reward failure and penalise success. I am all in favour of paying a bit more tax for the needy if I earn a good wage but there is no logic in how it works in the UK at the moment.
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I wouldn't dispute that there are many who cannot afford to save/buy their own place etc.
But there are also many who have a "spend spend spend" attitude on the strength that someone else will take care of them when they need it, and are quite happy to rack up unserviceable levels of debt, playing credit cards off against one another etc.
So someone who chose to be a saver rather than a spender effectively gets punished. OK, now I see it, the savers are the fools, but it hardly seems fair...
EDIT: I'm just a slower typist than Pica. The rock 'n' roll years are just about to begin :-)
Edited by smokie on 05/01/2009 at 17:40
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>> It only makes a real difference to companies It also makes a difference to me as well as I have base rate tracker mortgage :o)
No it doesent.
There is a threshold level on interest paid to loans whereby if the rate fall belows that level - no money is made on that loan. its about 3.5 to 4%. Below that you make a loss - In any market at any time let alone now.
So your tracker will have a threshold level in the small print, below which it wont fall. Failing that there will a "repay all the capital now or we tear up the mortgage and sell the house - tough" clause.
Once base rates get to 3-4% dropping below that does nothing for the consumer, specially with the interbank rate higher than that.
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Many tracker mortgages have a collar, or lower rate limit, but the legality of these may soon be tested:
tinyurl.com/8jvtcd
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>>So your tracker will have a threshold level in the small print, below which it wont fall. Failing that there will a "repay all the capital now or we tear up the mortgage and sell the house - tough" clause.
Not on mine there isn't, either clause that is.
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... Not on mine there isn't, either clause that is.
Are you one of the minority exceptions ["almost every mortgage"] referred to in the case I linked to earlier, where:
" ... Peter and Marian Addyman, who live in St Leonards, East Sussex, received a letter this month from NatWest ? part of the Royal Bank of Scotland, which is majority-owned by the Government ? insisting that they repay a £226,000 mortgage within 30 days or face repossession.
The couple, who have never failed to make a mortgage repayment, bought their new-build five-bedroom property for £250,000 in 2004. When their initial mortgage deal expired at the beginning of the year, they took out an interest-only tracker loan at 0.04 per cent above the Bank of England base rate.
Their local MP, Michael Foster, who has twice written to the bank to request an explanation, said of the mortgage: ?The bank are obviously not making any money out of it but they agreed it.?
The Council of Mortgage Lenders said that the clause allowing lenders to demand that a mortgage be repaid at short notice existed in the small print of almost every mortgage in Britain, although it was meant to cover only exceptional circumstances. This month a judge supported the right of lenders to repossess properties at will under a law dating back to 1925. .... "
Edited by jbif on 05/01/2009 at 20:45
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jbif
There is more to this case than you report. So tread carefully or this part of the thread is pulled.
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So your tracker will have a threshold level in the small print below which it wont fall.
Said with such authority and certainty that one could be forgiven for thinking you knew what you were talking about Ego ;-)
Mine doesn't.
I pay Base +1%.
No cap
No threshold
No lock-ins
No fees.
Currently paying 3% and looking forward to lopping another 1% off that in the days to come!
Standard off-the-shelf "HomeBuyer mortgage" from HSBC.
www.hsbc.co.uk/1/PA_1_5_S5/content/uk/pdfs/en/rece...u
Edited by whoopwhoop on 06/01/2009 at 14:13
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Ours is a 0.75% above base for life.
It has a minimum rate applicable to the mortgage of 1%, so we are only out of pocket once rates go below 0.25%.
We've had our tracker mortgage for quite a good number of years - we took it out when rates were at 3%, so banks were probably quite lax on the small print as they probably thought "the only way is up".
Trackers have become more popular and the small print has become more extensive as a result.
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And if we don't hoard our money, how will we pay our increased council tax for 2009, our increased water bills, our increased energy bills, find the extra 2p a litre plus vat for Aprils fuel increases, pay our increased National Insurance contributions...
Who is really going to set off and buy a new or even a used motor in this current predicament ?
Sorry HJ but it looks like you might have to do a bit of selling from home via the Auto Trader.
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