Banking

Before you blame bankers for being greedy, most of them earn less than £40k a year. I accept that there are some very successful gamblers, sorry bankers, who make, lose and earn fortunes. However, this blog is about the day to day bankers.

In a hypothetical world, would you lend money to you at a few hundred basis points? Nope. Categorical.

What % of borrowers default?  If you think 1%, then at 1% over base, a bank will break even, but they have costs, branches, staff and need to make a profit. Historically they have always charged about 3% over base rate (300 basis points) for good borrowers: Like development, a third for cost, third for profit and a third for purchase. In other words, not much. The rate usually swung out to 4-5% for the speculators. probably a fair rate considering the associated risks.

We are addicts and have to wean ourselves off these cheap fixes, which will help the professional landlords. When money was expensive (8-10% in total) , I would never have considered an investment unless it paid 25% return. In 2006, returns were at 5% and we sold out because you couldn't make a profit. Another cliche, sorry, is that too many cooks spoil the broth.

Expensive finance, and falling prices, are good for the professional landlord who takes the long term view. Yields will increase as the amount of landlords fall, causing rents to rise. The market will no longer be characterised by every man and his dog and we can go back to making some real cash that does not rely on a rising market.

Back to the bankers. You would not want to risk everything to lend to speculators at an effective negative interest rate, would you? No. Don't expect them to either.

Very painful advice to take, but let's keep the pressure on them just in case they do, eh?