What's next?

[expat]

... but they would still chase you for the net sum of your mortgage, so if your savings were not netted they'd simply be chasing you for more.

if mortgage is 1 million and savings are 500,000 pounds you are only liable for the net 500,000 if the bank goes bust, so the effect is that you are actually covered for your full 500,000 pounds savings. That is a massive advantage of an offset mortgage, because outside of this framework you are likely to lose 450,000 pounds.

What if they sell your mortgage to another lender just before going bust?

 

[Platypus]

Gordon Brown saves the day but I have an uneasy feeling. My instincts tell me that all he's done is messed around with nationalisation and done nothing to address the underlying problem: all that debt and inflated asset value is still there.

Is another financial timebomb not far away, worse than this one? And if so, what will trigger it?

I'm glad I'm not the only one wondering if the wonder-package-which-saved-the-world is really going to do anything else but delay a larger crisis.

It seems to me that consumer "confidence" can only be rebuilt when house prices start roaring up again, allowing people to borrow recklessly against their properties. Essentially giving them free money to buys cars, holidays, plasma TVs etc.

Until this happens, people don't have enough cash for these items, sales stall, unemployment rises, people lose their houses and default on their credit cards etc. Doom all round.

Even if the housing market could be put back to where it was overnight, as prices rise, more people are priced out of the market, these people don't have access to the "free money" of equity in their houses and so can't fuel a "growing" economy. Thus there will will be another bubble bursting. Doom follows.

I'm no economist (as is probably clear from my post) but how exactly was the Brown package supposed to work? Can someone please explain?

 

[Cyberman]

What if they sell your mortgage to another lender just before going bust?

I don't see why that should make any difference, because your mortgage is the net value. Your savings don't even need to be in a separate account, but they can be accrued within the mortgage account, which you can draw down on at any time up to the maximum mortgage limit.

 

[Cyberman]

I'm glad I'm not the only one wondering if the wonder-package-which-saved-the-world is really going to do anything else but delay a larger crisis.

It seems to me that consumer "confidence" can only be rebuilt when house prices start roaring up again, allowing people to borrow recklessly against their properties. Essentially giving them free money to buys cars, holidays, plasma TVs etc.

Until this happens, people don't have enough cash for these items, sales stall, unemployment rises, people lose their houses and default on their credit cards etc. Doom all round.

Even if the housing market could be put back to where it was overnight, as prices rise, more people are priced out of the market, these people don't have access to the "free money" of equity in their houses and so can't fuel a "growing" economy. Thus there will will be another bubble bursting.

I'm no economist (as is probably clear from my post) but how exactly was the Brown package supposed to work? Can someone please explain?

He's telling the banks to lend. This will add liquity to the market, and thus allow people to finance debts and new purchases. New purchases in turn stimulate the economy, thus creating/stabilising the jobs market, which in turn further adds to/stabilises liquidity by virtue of more people with spending power.

... BUT he also needs to cut interest rates. The Tories are keeping quiet because they want him to fail, and the best way for him to fail is to delay interest rate cuts.

 

[expat]

I don't see why that should make any difference, because your mortgage is the net value. Your savings don't even need to be in a separate account, but they can be accrued within the mortgage account, which you can draw down on at any time up to the maximum mortgage limit.

Are you sure that they can't sell off the full value of your mortgage, keeping the savings for themselves (and then going bust)?

Even if so, if they go bust and net it out, isn't is just as if you had prepaid your ordinary mortgage? OK, you have not lost, but that extra payment is now fixed out of your reach.

 

[Platypus]

This will add liquity to the market, and thus allow people to finance debts and new purchases. New purchases in turn stimulate the economy, thus creating/stabilising the jobs market, which in turn further adds to/stabilises liquidity by virtue of more people with spending power.

Okay, that's what I thought.

So why will a new boom built on debt not burst just like the last one did?

P.S. Why do you believe a cut in interest rates will make any difference?

Edit.

... by stimulating the economy, by cutting costs to business, and allowing borrowers to have more disposable income to spend.

I see you've answered that in the other thread. I would contend that borrowers won't have very much more disposable income because banks are still lending it out at stupid rates (e.g. 15%-20% on credit cards, 8%-20% on loans)

 

[Cyberman]

Are you sure that they can't sell off the full value of your mortgage, keeping the savings for themselves (and then going bust)?

Even if so, if they go bust and net it out, isn't is just as if you had prepaid your ordinary mortgage? OK, you have not lost, but that extra payment is now fixed out of your reach.

As I said, if you're worried about that, keep the savings in the mortgage account, then there is no argument.

Yes, if they go bust it's like a prepayment, but obviously they will then be chasing you for less.

 

[TykeMerc]

Are you sure that they can't sell off the full value of your mortgage, keeping the savings for themselves (and then going bust)?

Even if so, if they go bust and net it out, isn't is just as if you had prepaid your ordinary mortgage? OK, you have not lost, but that extra payment is now fixed out of your reach.

I haven't got my mortgage contract/terms/conditions to hand, but I do have an offset mortgage and from memory it's very clear that the mortgage is linked to the current and savings accounts. I don't see how my bank could just sell off my mortgage debt independantly of my other accounts. The accounts are very intimately linked and specified on the contract.
To an extent it's an "all my eggs in one basket" situation, but the benefits of an offset mortgage are appreciable and worth the risk to me. I don't pay 40% tax on my savings interest as I don't get any directly, it goes to the mortgage account so isn't income to me, also the amount of my mortgage that I pay interest on is tiny.

 

[Stan.goodvibes]

Whats Next ?

When all the stars are falling down
Into the sea and on the ground,
And angry voices carry on the wind,
A beam of light will fill your head
And you'll remember what's been said
By all the good men this world's ever known

Thanks. I feel reasurred

 

[Stan.goodvibes]

I have to ask, is everyone on here under the age of 25?

Having lived thru the 87 sharemarket crash, the dotcom bubble, and one or two other 'scares', I am amazed that ppl are posting here and elsewhere as if its the end of the world.

Yeah its looking like a decent recession, and we haven't had one of those for a while, but I wouldn't say the situation is (or likely to get) as bad as it was in the late 80's, especially not for I.T.

In a few years time you'll all be watching the Olympics on telly and this 'correction' will all be a distant memory