Lower Libor may lead to freer credit flow Lower Libor may lead to freer credit flow
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  1. #1

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    Default Lower Libor may lead to freer credit flow

    http://www.guardian.co.uk/business/2.../05/libor-thaw

    Signs of thawing in the money markets emerged today, raising hopes that banks may begin lending again to small businesses and households.

    The closely watched spread between the price banks charge each other to borrow on the money markets and the price set by the Bank of England fell to its lowest level since March, when the industry was stunned by the collapse of Bear Stearns.

    Three-month Libor – the London inter-bank offered rate – was set at 2.64% – 64 basis points above the Bank of England base rate of 2%. Though the 64-point gap is considerably higher than the 10 points that would have commonly registered before the August 2007 credit crunch, it was narrower than any time since 18 March, according to data provided the British Bankers' Association.

    The apparent reluctance of banks to lend to small businesses and homeowners has in part been blamed on the stubbornly high level of Libor. However, even those who sought solace in the reduction of the spread pointed out that the base rate was expected to fall to at least 1.5% after the monetary policy committee meeting on Thursday, raising the gap above one percentage point again.

    The struggle to persuade banks to lend is continuing to cause controversy and the Treasury is considering ways to force banks to keep finance flowing through the system.

    The industry is keen for proposals by Sir James Crosby to be implemented as soon as possible. The former HBOS chief executive outlined a plan to guarantee £100bn of bonds backed by mortgages to kick-start mortgage lending. There are hopes that the proposals, which the Treasury is discussing with EU state aid experts, could be extended to cover loans to the small-business sector.

    There are also suggestions that the government could create a bank to hold the toxic assets clogging up balance sheets, though many bankers believe that such a move may not be necessary.

    "There is no magic bullet," one banker said. "But the government also has to have reasonable expectations."

    Though the Bank of England's credit outlook last week showed banks had reduced lending in the last three months of 2008 and expected to do so again in the first three months of 2009, the big banks argue this is because lenders who were active before the credit crunch are no longer in the market. These include banks in Iceland and Ireland, as well as specialist lenders and many building societies.
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  2. #2

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    Hmm, i want to know how low 5 year fixed mortgage rates will get to if base rate is dropped to 1.5% (below 60% LTV).

    I would expect 4.00% fixed rates would be possible for banks if Libor dropped to close to 2.00%?

    Parents on SVR waiting for the bottom of LIBOR before fixing till end of term (about 7 years).

    Any predictions?

  3. #3

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    Quote Originally Posted by Solidec View Post
    Hmm, i want to know how low 5 year fixed mortgage rates will get to if base rate is dropped to 1.5% (below 60% LTV).

    I would expect 4.00% fixed rates would be possible for banks if Libor dropped to close to 2.00%?

    Parents on SVR waiting for the bottom of LIBOR before fixing till end of term (about 7 years).

    Any predictions?


    5 year fixed rates will be based on expectations of rates over the next five years, not on what the rates of today are. Inflation is expected to rise after approx. 1 year of deflation, and it could actually be quite high.
    My guess is that 5 year fixed rates will not get much cheaper than 5%. 2 year fixed rates could be quite a bit lower at about 3% IMO.
    The best idea would be to get a tracker but banks are not to keen to offer those at the moment for obvious reasons. Mine will be about 1% as of next week !!

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