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  • Mortgages & Finance

    BoE base rates and lenders

    Hi all,

     

    I have a question regarding current boe base rates.

     

    If the BOE charge banks 0.5% (current base rate) does the BoE really make that much return?

     

    Eg: Boe Lend banks say, £75,000 at 0.5% per year.

     

    You borrow 75000 for a mortgage at 6% per year.

     

    Say the borrowings are there for 10 years.

     

    The Boe will make from the bank:75,000 x 0.5 x 10= £3750

     

    The lender will make: 75000 x 6% x 10 = £45,000 - 3750 = 41,250 (ignoring paying back the orginal amount)

     

    Is the BoE returns as low as £3750 if lending to them on the current example at a rate of 0.5%?

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    Nick
    Im confused, I know banks lend to each other (LIBOR) but I thought the Bank of England also lent monies to banks as well at their interest rate?
    So the above example is not complete?
    1-Where and at what rate do banks get monies lent to them?
    2-How much margin above do they lend?3- If the base rate is 0.5 and the banks charge you eg 5% for a mortgage if they make the difference ie 4.5% who has the other 0.5?
    Can anyone share any thoughts on this?
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    Hi Nick, thanks for this and this is very interesting. I have just googled it and found a million different pages about this.

    I understand banks have to deposit with the BoE and the bank get interest on this at 0.5% and the Boe can lend again and charge higher interest rates. But also, from reading on the other pages, they lend to other banks as well i.e. "The rate at which the Bank of England lends to other banks in the UK".

    Would the above example be right if the BoE lent at 0.5%? Otherwise if banks make the difference betweem the base rate and what they charge, who has the remainder?

    I was wonder if we could have any other input, although it is a complicated topic.

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    Hi Fernando

     

    Th Bank of England will be able to offer a far better explaination than me but I broadly agree with Nick's response.

     

    Each regional Bank of England office hosts monthly briefings which are free to attend by invitation.  If you would like to be invited please contact stephanie.mason@bankofengland.co.uk or Telephone:0207 601 5711 and tell her that I've introduced you.

    Regards

    Mark

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    Regards


    Mark Alexander - Property118.com
    Twitter: @iAmALandlord
    I don't beleive the 'bailout' loans were provided at 0.5%.  How much did BoE charge the banks for these?  I've Googled but the answer isn't obvious.Nick Parkin said:

    Fernando,

     

    Yes the BoE lends money too - but at different rates, I think they hold auctions for the rate. And then there is the LIBOR that you mentioned ..........

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    Regards


    Mark Alexander - Property118.com
    Twitter: @iAmALandlord
    The Bank of England is the 'lender of last resort' for the banks; not a bank as we would see it. They control the supply of money into the economy.
    The banks lent money for the bail out at an average 12% pa. Despite the furore the tax payer stands to make a very attractive return!
    Lisa
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com