Apparently the Bank Of England's official interest rate has been cut to 3%, which is the lowest it's ever been in my lifetime.
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It's probably lower than most people on here, 53 years apparrently.
Just you watch the banks rush to drop their mortgage rates now... best bring some food and drink and a comfy cushion though if you're waiting.
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We went for a fixed rate mortgage last year, so still have 3 1/2 years to go, but I'm cool with that, we knew that rates can go up as well as down and decided to stick at a rate we knew we could afford and take the risk we might end up paying more in the long run if this happened. though I didn't expect quite this dramatic a drop I'll admit.
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We signed up for a lifetime tracker last year, 0.34% above base. Only because I was sick of being hauled in every 2 or 3 years to have the Nationwide try and sell us their expensive and unnecessary insurance policies.
So in hindsight, thank you to the Nationwide salepeople.
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ECB has dropped by 0.5% to 3.25%. I'm on a variable mortgage so I'm not sure if they will pass on the full amount to me.
What are the wider implications of the rate cut? Is it to encourage banks to resume lending?
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What are the wider implications of the rate cut? Is it to encourage banks to resume lending?
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I signed for a 5-year, base rate plus 0.5%, tracker, just four months ago, when that rate was 5.75% (the base rate was 5.25% at the time). The alternative was a 5-year fixed at 6.75%.
It's the only financial gamble I've ever made that's paid off so handsomely (I was brought up with my Dad's mantra of "if you can afford the fixed rate deal, take it, at least you won't be in for any nasty shocks").
My monthly mortgage repayments have just dropped from over £1,000 a month to just less than £800. A bit like TG, if I can recycle the difference into paying off the capital element early, I'll knock almost a quarter of my (originally 20-year) mortgage off in the next 3 years.
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Speculation in the papers and on the news here that the ECB will drop it's rate by 0.5% next month and will reduce it down to 2% or less. Are we heading for very low inflation or possibly deflation?
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So is it just a question of when mortgage lenders drop their rates, or might they never do it?
(My mortgage runs out in April. I was going to start looking for new deals this month, but perhaps it's not worth the effort?)
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Depends what your early redemption penalties are, if any. All rates are likely to drop from where they are now over the next six months, but whether that stays a permanent thing or not is anyone's guess.
An early redemption penalty of 1% of the total value of your outstanding mortgage, is of course 12 times the monthly value of an apparent 1% annual interest rate cut - and you'll have to pay it in one hit - so be careful in comparing offers.
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The best estimate is that the 1.5% cut in the Base Rate might translate into a 05.-0.75% cut in mortgage lenders' variable rates, as inter-bank borrowing rates are still very high.
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If you have a mortgage with one of the bail-out banks, a rate cut for you would be interesting.
From what I heard on the radio last night, the banks are borrowing that money at around 8%. They can't exactly make a profit if they then lend it back out at 3.5 - 4%
And we need them to make a profit so someone else takes them off our hands.
So they're damned if they do cut and damned if they don't cut.
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I've sort of assumed that none of the interest rate cuts since Lehman Bros. went tits-up were expected to be passed on to consumers. They were designed by central banks not to stimulate more lending but to increase retail banks' lending margins so that they can re-capitalize quickly.
Am I wrong about this?
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Depends what your early redemption penalties are, if any. All rates are likely to drop from where they are now over the next six months, but whether that stays a permanent thing or not is anyone's guess.
An early redemption penalty of 1% of the total value of your outstanding mortgage, is of course 12 times the monthly value of an apparent 1% annual interest rate cut - and you'll have to pay it in one hit - so be careful in comparing offers.
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It seems to me that the record in OECD countries of governments owning commercial banks does not contain a whole lot of examples of these institutions making profits and returning them to the treasury.
It does, however, have a pretty serious record of offering opportunities for corruption (see French banks acting as conduits for all sorts of illegal stuff under Mitterand).
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I've sort of assumed that none of the interest rate cuts since Lehman Bros. went tits-up were expected to be passed on to consumers. They were designed by central banks not to stimulate more lending but to increase retail banks' lending margins so that they can re-capitalize quickly.
Am I wrong about this?
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