More lies and disinformation from the BBC

From the BBC:

An analysis by the Council of Mortgage Lenders (CML) last year suggested that a quarter of the £20bn annual interest saving, brought about by the Bank of England's 0.5% bank rate, was showing up in higher mortgage capital repayments...

*epic fail*

The 0.5% is not the rate that the BoE charges the banks for lending to the banks, it is the rate that the BoE pays the banks for taking deposits from banks.

Sure, when banks are setting mortgage rates, their starting point is the 'risk-free' rate of return, which is indeed 0.5%, but as we well know, market interest rates paid on mortgages or credit cards are largely dictated by the perceived risk of any loan, which is why the marginal interest rate on higher loan-to-value mortgages is in excess of ten per cent and on credit cards in excess of twenty or thirty per cent. But commercial banks' borrowing "from the Bank of England is normally conducted at the base rate plus another one per cent or more" (per the BBA).

The banks are being propped up by rather more nefarious means, like Special Liquidity Scheme, guarantees, capital injections and so on, which underwrite about one quarter of all mortgage lending. Finally, as a fig leaf, the government has imposed these loony 50% income tax rates, which claw back one or two per cent of the cost to the taxpayer at most.

The whole thing is an outrage of course - the government is paying a marginal interest rate well in excess of five per cent (at taxpayers' expense) to lend money to commercial banks at two per cent, which the banks then lend back to mortgage borrowers at four or five per cent to invest in pre-existing assets with a more or less zero return to the economy (it's the same people in the same houses), but hey.

*/epic fail*

Cross-posted at HPC.