BoE base rate rise?
Discussion
Jon39 said:
With the enormous popularity of PCP (think said to be 80% of all new cars), regulation could effect future transactions, but what happens when people come to the end of their present contracts ?
I am told that the industry designed these schemes, so that many customers would not be able to afford the final 'balloon payment'.
They instead start all over again, with another new car. If new PCP is restricted, what will people do ? Surely after being used to regularly having new cars on their driveway, they won't want to hand back the keys and start travelling by bus.
How can lending with these schemes be restricted ?
If the government really wanted to regulate PCP then making the deposit 20% would be a start but by using smoke and mirrors they would just work round it!
Jon39 said:
With the enormous popularity of PCP (think said to be 80% of all new cars), regulation could effect future transactions, but what happens when people come to the end of their present contracts ?
I am told that the industry designed these schemes, so that many customers would not be able to afford the final 'balloon payment'.
They instead start all over again, with another new car. If new PCP is restricted, what will people do ? Surely after being used to regularly having new cars on their driveway, they won't want to hand back the keys and start travelling by bus.
How can lending with these schemes be restricted ?
Donkey Apple talks about regulation as the best tool to control spending, and I agree to an extent, but I don't see it happening. Not explicitly anyway. Since the 2008 crash, banks have been made to hold more capital which in turn makes them more risk adverse, supposedly. We did see the end of crazy self-certification mortgages and maybe some stricter affordability criteria but lending has continued to rise. I doubt very much that any government will be brave enough to really tighten things up here.
Terminator X said:
Granfondo said:
God help the country if we see 3% in the next few years.
Imho not a chance. If it does get to that level it will take 10 years + as that way slow steady increases give people the chance to get used to each rise first.TX.
mcbook said:
I don't think it will happen in the UK as governments are afraid to meddle in such things. However, an option for PCP would be to insist on a deposit of at least 20% of a car's value. That was introduced in the UAE when I lived there as a way of cooling spending and reducing the risk of negative equity.
Donkey Apple talks about regulation as the best tool to control spending, and I agree to an extent, but I don't see it happening. Not explicitly anyway. Since the 2008 crash, banks have been made to hold more capital which in turn makes them more risk adverse, supposedly. We did see the end of crazy self-certification mortgages and maybe some stricter affordability criteria but lending has continued to rise. I doubt very much that any government will be brave enough to really tighten things up here.
Regulation to control spending will needs to be very specifically aimed at the naughtiness of PCP (miss selling and PX fixing), not the product itself. Wider Bank / Financial Services regulations is a bad idea at this point.Donkey Apple talks about regulation as the best tool to control spending, and I agree to an extent, but I don't see it happening. Not explicitly anyway. Since the 2008 crash, banks have been made to hold more capital which in turn makes them more risk adverse, supposedly. We did see the end of crazy self-certification mortgages and maybe some stricter affordability criteria but lending has continued to rise. I doubt very much that any government will be brave enough to really tighten things up here.
We are still implementing posting GFC regulations (enhanced capital floors only now phasing in). Regulations can be very laggy and prone to arbitrage. There is a growing dichotomy between Anglo and EC regulators on approach to leverage with EC promoting 0 reserve banking to kick start economies.
I think DA called it right (Carney pretty much spelled it out in his conference). Personnally I feel that Carney and other Central bankers have been calling for more fiscal intervention.
Jon39 said:
With the enormous popularity of PCP (think said to be 80% of all new cars), regulation could effect future transactions, but what happens when people come to the end of their present contracts ?
I am told that the industry designed these schemes, so that many customers would not be able to afford the final 'balloon payment'.
They instead start all over again, with another new car. If new PCP is restricted, what will people do ? Surely after being used to regularly having new cars on their driveway, they won't want to hand back the keys and start travelling by bus.
How can lending with these schemes be restricted ?
If the government really wanted to regulate PCP then making the deposit 20% would be a start but by using smoke and mirrors they would just work round it!
rockin said:
DonkeyApple said:
Domestically .........we can restrict new debt via increased regulation..
So much for the Free Market - beware Comrade Corbyn and state regulation of everything.DonkeyApple said:
Until there is actual wage inflation the use of rates to control consumer spending is a redundant tool
You won't have long to wait. It's cheap labour from within the EU which has suppressed UK wage inflation for 20 years. How much will it cost an employer to get a Brit into a job which a Pole would have been willing to do for £7.50 an hour? To pay even £10 an hour is a 33% wage cost increase.This is why societies have always regulated usury. It used to be the religions that controlled it but today it is central governments. But since 1987 we have been on a path of removing these restrictions specifically to get people consuming more and so increasing tax collections while letting the population think they are getting richer, when of course debt fuelled consumption makes the people poorer. In the 90s we had Greenspan's great economic miracle of removing swathes of restrictions and New Labour copied. Firms like MBNA or Ocean Finance didn't just appear because something suddenly thought up the idea of lending money to poor people at huge premiums but because the governments removed the restrictions that protected the poor from the blight of excessive consumption.
And leaving the EU will not change the cheap labour situation. Firstly because it's unlikely to limit EU economic migration and secondly even if it does, Brexit has no impact on economic immigration from non EU states. The UK will still be hooving up cheap labour from overseas Brexit or no Brexit. Hard Brexit or Soft Brexit. So long as the people want to dedicate their lives to consuming as many imported goods as they possibly can in as short a period of time as possible then cheap labour will continue to be required to feed this beast of greed, excess and collective insanity based around the worship of new kettles that can talk to your new phone, while you watch premium TV on your new TV while sitting on your new sofa inside your new house. None of which you needed and none of which you have paid for.
Jon39 said:
DonkeyApple said:
... last year we saw a major shift in where professional consumers were obtaining their buying power with a continued shift from using property debt to less regulated types of debt such as car and retail loans. But we are now seeing these areas coming under the microscope and being reigned in with stronger regulation.
With the enormous popularity of PCP (think said to be 80% of all new cars), regulation could effect future transactions, but what happens when people come to the end of their present contracts ?
I am told that the industry designed these schemes, so that many customers would not be able to afford the final 'balloon payment'.
They instead start all over again, with another new car. If new PCP is restricted, what will people do ? Surely after being used to regularly having new cars on their driveway, they won't want to hand back the keys and start travelling by bus.
How can lending with these schemes be restricted ?
The regulator's job is to ensure that as best as possible that retail debt does not overtly achieve the latter.
However, there are three core areas where this has failed for one reason or another. Credit Cards, Pay Later deals and PCP. With credit cards the fees from default are so lucrative that lenders entice consumers into default by continually offering to increase their credit limits (remember how insane that got over the turn of the century until the regulator reigned thebpractice in?) and by promoting the concept of not paying off the balance each month. With Pay Later deals it is much more insidious. As lenders we know that the type of consumer attracted to these deals have an extremely high likelihood of still not having the money to pay the monthly fees in 6 months time. If this type of consumer can't pay the monthly today then we know they won't be able to in 6 or 12 months either. But the penalties for this failure are huge. The true purpose of these consumer products is to reap the massive returns from the abnormally high default rates. And then car debt, the trick of the 'balloon' is very much the same. We know the average consumer who resorts to such a mechanism simply won't have the funds to cover the balloon and so we will get them rolling over again and again until they are kaput.
But there is a really, really simple way to halt every single insidious consumer debt practice and lose all the debt products that are designed to entrap consumers and that is to make the same regulatory change that they made in the Gaming industry and that is to make the debts unenforceable.
If lenders couldn't chase bad debts then they wouldn't sell financial products which contain a significant revenue attribution from predicted defaults. Credit card companies would carry out genuine suitability, Pay Later deals and 0% finance scams would disappear overnight.
With PCP all you have to do is remove ballon structures as permissible elements of retail loans. But the car vending industry is a disgrace of malpractice when it comes to the selling of debt. There is no other market place in th UK where an unqualified vendor can be incentivised to sell based on commission rewards, has no semblance of TCF and only offers a 'house' debt product that is forced onto the consumer using artificially inflated product RRP's to ensure non 'house' debt products are uncompetitive.
Car vending is a massive rip off and in desperate need of bringing into line with all other financial products.
But if you ended PCP tomorrow you wouldn't have armies of people having to take the bus you'd just have armies of people not spending so much elsewhere and downsizing to make the adjustment.
Some good points above.
1 - credit cards, max limit on all cards held, should not be more than say 3 x monthly net wage.
2 - buy now pay later - max interest rate allowed, say 20%
3 - pay day loans - max interest say 20%
4 - limit all unsecured lending to equivalent of 1 years gross salary.
That should help!
1 - credit cards, max limit on all cards held, should not be more than say 3 x monthly net wage.
2 - buy now pay later - max interest rate allowed, say 20%
3 - pay day loans - max interest say 20%
4 - limit all unsecured lending to equivalent of 1 years gross salary.
That should help!
DonkeyApple said:
But if you ended PCP tomorrow you wouldn't have armies of people having to take the bus you'd just have armies of people not spending so much elsewhere and downsizing to make the adjustment.
Thank you for answering my question DA.
I am trying to picture this in practice.
New car motorists have enjoyed (renting) their premium cars (Mercedes UK sales have literally doubled in about 6 years) having only had to pay for depreciation. If the PCP does becomes unavailable or restricted, do they hand back their premium car, then buy a cheap car. Oh dear, what would their neighbours think? Perhaps you will tell me, that their neighbours would be doing exactly the same thing.
I taught my children the fallacy of debt, by simply showing them the arithmetic. There is of course, only extra money to spend in year 1 of the term of a loan. In the subsequent repayment years, there will be less income available to spend than otherwise. Therefore with a 5 year personal loan, you are better off in year 1, but worse off in years 2, 3, 4 and 5. One year of joy, versus four years of regret.
Edited by Jon39 on Thursday 2nd November 17:31
KTF said:
The way MSE is reacting to the 0.25% increase in tracker mortgages (some of them raising it today, gasp!), its like the end of the world has happened.
Something is very wrong if people have not factored a 0.25% rise into the monthly payments.
It's just the modern media hysteria. Every story has to structured around the massacre of children, cats or a collapse in property values. Something is very wrong if people have not factored a 0.25% rise into the monthly payments.
By next week everyone will have realised that it's just undoing the emergency cut made after the Brexit vote and that the likihood of entering a sustained period of rising rates still remains some way off.
In reality, rates can rise quite a bit before people begin to genuinely struggle. Most consumer debt deals have an awful lot of fat packed into them. When rates do tick up a couple of percentage points then what you will see is a decline in all the fake rates (zero deals) as the mark up on the goods value needed to make the wheeze work will probably be too large for the goods to remain looking competitive. But real lending rates don't need to increase if it would mean a significant decline in sales volumes. Vendors will prefer to eat into their profit margins on the debt than let gross revenues and turnover decline given how those metrics have become the norm for measuring a company's health!
BoRED S2upid said:
55palfers said:
MrOrange said:
Ah, but what will a 25bp rise in the base rate translate into the average mortgage? 0.5 or 0.75% increase?
I'll bet it won't translate that much on savings rates though.doogle83 said:
BoRED S2upid said:
55palfers said:
MrOrange said:
Ah, but what will a 25bp rise in the base rate translate into the average mortgage? 0.5 or 0.75% increase?
I'll bet it won't translate that much on savings rates though.To be fair, they would be contractually obliged to inform you of such a change as it is instrumental to your product and as interest is probably calculated on a daily basis the change is immediate.
What is probably a little rude is if they reckon that by informing you today they can also charge you today but the small print in your terms may well state that the boe rate is taken at the end of each day rather than at the open?
What is probably a little rude is if they reckon that by informing you today they can also charge you today but the small print in your terms may well state that the boe rate is taken at the end of each day rather than at the open?
KTF said:
The way MSE is reacting to the 0.25% increase in tracker mortgages (some of them raising it today, gasp!), its like the end of the world has happened.
Something is very wrong if people have not factored a 0.25% rise into the monthly payments.
Yes, especially when you consider most would have seen the 0.25 drop a year ago! MSE is not exactly the place for any kind of financial sense. In fact they used to have some credibility but I've long unsubscribed from the weekly email of useless crap.Something is very wrong if people have not factored a 0.25% rise into the monthly payments.
Pheo said:
Lots of people are running on the financial edge, and inflation on key goods has been running high since Brexit, so I suspect there are people who are now at risk.
In theory, rate rises will strengthen the pound and bring those costs back down. As an economy it's vital that we use rate rises to keep our currency inline with the global currency of the USD as they increase rates and decrease QE and ahead of the Euro as they languish with Germany being throttled back by all the other much slower and enormously endebted economies. Plus, people 'on the edge' are usually paying monthly debt servicing well into double figures. A 25bp rise will be negligible to the overall liability.
The biggest danger/risk for those on the edge isn't from rising costs of debt financing but in reality a contraction in the availability of new debt to keep the cycle going.
DonkeyApple said:
The traditional domestic role of interest rates rises is to curb spending in the wake of wage inflation that has increased the populations spending power. Well this is no longer relevant and currently merely a 20th century economic footnote. Wage inflation in the modern economy has been replaced with debt consumption. But rather than wanting to curb spending, debt facilitation has been used to compensate for zero wage inflation and to increase consumption so as to increase tax in order to feed the beast.
So the traditional economic argument of not having rate rises without it being a function of wage inflation is fundamentally flawed as debt facilitation has for the last twenty years been the means to synthesise the effects of wage inflation. Allow a household to borrow another 10% of their house hold income and you've just synthesised a 10% pay rise and the consumption that then follows is more potent as unearned money is spent more freely than earned money and the tax receipts leap.
.
Yes, your right in the short term that a 10% rise in consumer debt translates to the same as a wage increase that will boost consumption in the economy. However consumer debt has to be paid back eventually and in the longterm you can't grow an economy by allowing consumer debt to increase way beyond wage inflation (as it has to be eventually paid back). This is achieved by cutting future consumption when the model relies on ever increasing consumption, therefore not really the same as actual wage inflation.
You've hit the nail on the head. It's the whole reason why using consumer debt to synthesise the economic effect of wage inflation is so desperately toxic and why it has always been regulated.
Since 87 the regulation that was in place to protect against this exact problem that we have today has been steadily repealed so as to stimulate sythentic growth. You are absolutely right that such actions will always have a day of reckoning.
Historically we have just blamed the Jews and massacred them when we've borrowed more from the money lenders than we can repay.
Or we have had revolutions as wealth divides driven by debt have grown too wide.
Prudent consumer debt is a very good thing as it stimulates mobility. Excess consumer debt is incredibly bad as it fractures and destroys societies, impoverishes the majority and enriches the few. There is an extremely good reason why the major religions considered it to actually be an evil.
Since 87 the regulation that was in place to protect against this exact problem that we have today has been steadily repealed so as to stimulate sythentic growth. You are absolutely right that such actions will always have a day of reckoning.
Historically we have just blamed the Jews and massacred them when we've borrowed more from the money lenders than we can repay.
Or we have had revolutions as wealth divides driven by debt have grown too wide.
Prudent consumer debt is a very good thing as it stimulates mobility. Excess consumer debt is incredibly bad as it fractures and destroys societies, impoverishes the majority and enriches the few. There is an extremely good reason why the major religions considered it to actually be an evil.
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