Rising interest rates will be a very new challenge for many to face this year

Rising interest rates will be a very new challenge for many to face this year

By David Hargreaves

Thousands of Kiwis will one day very soon face something completely new to them - an increase in mortgage payments.

Yes, for the first time since 2010, floating mortgage rates are set to rise.

And for recent first-time homeowners this will be completely fresh terrain. For the more seasoned it will bring back unwelcome memories.

The Reserve Bank is set to make its latest call on interest rates on January 30. The RBNZ's Official Cash Rate was lowered to the current 2.5% level as long ago as March 2011.

Since then there has not been one subsequent review in which there has been a serious chance that rates may rise (although further falls were speculated for a while).

But now with the January 30 review there really is a real chance that rates may be increased.

It is still just a chance, mind. The greater probability remains that our central bank will await its next full Monetary Policy Statement in March before unholstering its guns and raising rates. That way it will be able to fully explain its actions in the documentation and accompanying press conference.

But whether it is January 30, or March 13 (the next review date, possibly unlucky for some) a rate rise is virtually certain. That is, unless there is some untoward external intervention, such as a massive global financial crisis or a natural disaster. And nobody needs reminding that we've had both things within the past six years, so nothing in life is certain.

25 basis points

All things being equal though, a rise, presumably of 25 basis points, will be made, lifting the OCR to at least 2.75% by the end of March.  As things stand at the moment the rise will be the first of at least a few this year. Some economists are now tipping the OCR may be as high as 3.75% by the end of the year. 

The Reserve Bank itself is currently indicating that it sees the OCR peaking at 4.75% in early 2016, following what it expects to be a series of rises to rein in inflation that is expected to be generated by New Zealand's now strongly recovering economy.

All very well, but what does this mean to the homeowner/mortgage holder?

As suggested at the top of this story it means that thousands of Kiwis who have taken up mortgages for the first time in the past few years will not have faced an increase in their monthly mortgage payments before. It will be a novelty. But it's a novelty that might wear off pretty quickly.

The last time the RBNZ increased the OCR was in 2010. Floating rates on new mortgages, according to RBNZ figures, rose at that time on average to 6.36%. Since the drop in the OCR to 2.5% in March 2011, following the second Christchurch earthquake, the average effective rate on new floating mortgages has settled at around 5.87%.

According to RBNZ figures again, the average size of floating mortgage - bearing in mind this includes all existing mortgages, even those that might be close to full repayment - is a touch under $100,000. Interest.co.nz's mortgage calculator gives a current monthly repayment on a standard $100,000, 25-year, mortgage of $636.

Not breaking the bank

If it were to be presumed that the banks simply pass on the expected 25-basis point rise - and the ifs and whats of that particular topic are discussed further down here - then our imaginary mortgage holder's monthly payment would rise to $652. That's a $16, or 2.5%, rise. This is hardly something that would break the bank, or at least, the person paying the bank.

But what about those who are pushing out the boat a little more with the size of mortgage? Anybody who might have borrowed 80% of the value of a house priced at the current national median of $427,000 would have a hefty $340,000 mortgage and be currently paying $2164 a month. Adding 25 basis points to this would push the payments up by $52 a month to $2216 a month, according to the interest.co.nz calculator.

And if we push the boat out even further and go with the example of somebody borrowing 80% on the Auckland median-priced house (a snip at $600,000), this would give a $480,000 mortgage costing $3055 a month now and $73 more at $3128 after the rate rise.

The figures suggest that, at least initially, the rate rises are not going to cause unbearable hardship.

Don't grumble

Anybody inclined to grumble should consider the fact that as relatively recently as mid-2008, floating mortgage rates were about 10.9%. And there are grey-haired people around (assuming they didn't lose it all through worry) who can recount what it was like to be paying 20.5% in mid-1987.

But after that has been said, this year may yet prove to be a considerable challenge for the homeowners.

There are a couple of things that suggest Kiwis may not be as physically or mentally prepared for rate rises as they perhaps might and should be.

It's clear from some of the comments we see on the interest.co.nz website that some people don't see a case for interest rate rises and are not inclined to believe the rates will rise. While, as indicated earlier, nothing is certain, its is fair to say we've been living in an environment of unusually low rates. They will go up. And the economic evidence, including a now less than benign inflation picture, is continuing to point to the need for rate rises this year.

Are you ready?

Nevertheless some people may not be mentally prepared for higher mortgage payments. It's surprising how quickly an unusual situation (low rates) becomes a comfortable status quo that we don't expect to change.

And how physically prepared - that is, financially, are kiwis?

One thing the RBNZ keeps a close eye on is the indebtedness of people. If you go back before 2000, the RBNZ statistics show that the household financial liabilities of Kiwis represented on average less than 100% of their disposable income. In 2000 the 100% threshold was crossed. Incredibly the percentage figure kept on soaring, hitting the 150% mark in March 2007, before topping out at 153% That's right, New Zealand households on average had financial commitments one-and-a-half times the size of their disposable income.

In the more austere days after the global financial crisis, greater numbers of Kiwis were saving their pennies and reducing debt levels, with the indebtedness figure dropping to 142% by March 2012. But since then it has been on the surge again as credit growth has resumed more strongly. As at September, the latest figure available, the percentage had risen to 148%.

It is worth bearing those figures in mind, and putting them up against previous times when the Reserve Bank has pushed the button on interest rates, which you can see in graphic form here.

When it goes, it goes

Another thing to bear in mind is that when the RBNZ decides to push that interest rate button, it can do so pretty decisively. All those who doubt that the RBNZ could raise rates by perhaps 125 basis points this year need to consider the fact that in the past the RBNZ has hiked the OCR by as much as 200 basis points - in as short a period as just seven months (November 1999 to May 2000).

So could the RBNZ lift rates 125 basis points this year? If it feels it needs to, you bet. And it won't be swayed by any amount of carping from homeowners. If inflation needs taming, then that's what the RBNZ will do.

But back on those interest rate cycles and referencing them to the relative indebtedness of Kiwi households. That very stringent 200 basis-point hiking push that occurred in 1999-2000 did so when the financial liabilities ratio to household disposable income was hovering around 100%. When the OCR was lifted 150 basis points during 2004, which was the trigger for a whole series of rises over the next few years, the ratio was up to about 125%.

Remember the figure is now 148%, which suggests that we are starting this round of rate hikes with the financial position of households looking much more vulnerable.

So, with that in mind, it is worth getting back to painting some scenarios. Using the mortgage examples given higher up the article, if the RBNZ was to lift the OCR to 3.75% this year - a level I think it will hit - then if the increases were fully passed on by banks, floating mortgage rates would be around 7% by the end of the year.

That means that someone with a $100,000 mortgage, currently paying $636, would then be paying $707 a month. If the RBNZ's right about where it will end this cycle of rate rises - that is an OCR of 4.75% by early 2016 - then the monthly mortgage payment, assuming an interest rate of 8%, would be $772 a month - which is 21.4% more than is being paid at the moment. 

Higher still?

What if the RBNZ is wrong and it will need to raise rates higher? Sad to say that in the past the central bank has been forced to raise rates higher than it and others may have expected at the time it started increasing the rates.

For slightly playful comparison purposes, it's worth adding into our scenario how much a 10.9% interest rate (the peak of the last housing boom in 2008) would cost. Well, it would be $973 a month, which is over 50% more than current payments. Unbelievably, a 20.5% rate (surely such rates could never be reached again!?) would give a $1719 a month payment. How did they do it?

Returning to the (hopefully more likely!) interest rate scenarios, and applying them to the bigger mortgage examples quoted earlier, that $340,000 mortgage currently costing $2164 a month would zoom up to $2403 at a 7% mortgage rate and $2624 at 8%.

Our brave Auckland buyer with the $480,000 mortgage, currently being charged $3055, would face bills of $3393 at 7% and $3705 at 8%.

The 10.9% and 20.5% scenarios are not included on these examples as the figures may cause some people to have to go for a lie down! Don't let me stop you working them out yourselves, however.

But the point is, depending on what happens this year, people may have to be very conscious of a need to give their finances some "wiggle room" for if the worst, or even the generally anticipated path, of interest rates materialises.

One thing that can obviously be done to insulate yourself is fixing your mortgage rate.

A dynamic situation

There is an interesting dynamic around that.

In the early 2000s, amid the housing boom occurring then, there was a massive move by homeowners to fixed mortgage rates - which the banks were able to increasingly offer due to the presence of vast amounts of cheap money available offshore.

RBNZ figures show that as of March 2007 at the height of the housing boom only about 14% of mortgages by value were floating - the rest were at fixed rates.

This of course made the RBNZ's job very tricky. Our central bank raises the OCR expressly so that people will have to pay more on their mortgages and thus be spending less elsewhere, so dampening demand in the economy and taking the heat out of inflation.

But if large numbers of people are impervious to the effects of rising mortgage rates - because they have a locked in rate - then their behaviour is not affected and the desired dampening impact doesn't occur.

Problems, problems

And this was the problem the RBNZ had once it started seriously pushing up the OCR in the mid-2000s. There was a very long lag in terms of impact on inflation and so interest rates ended up being higher than would arguably have been needed if more people had been on floating mortgages.

Of course once the bubble was burst after the global financial crisis and low interest rates were here to stay (for a while), then so people jumped out of fixed mortgages and back into floating.

By March 2011 the proportion of mortgages by value on floating rates had exceeded those on fixed and by April 2012 the proportion on floating was up to as high as 63%.

But as it has become apparent that low rates will not prevail forever, then so the trend has reversed again. In May last year the value of fixed rate mortgages passed those on floating again and as of November 2013, the latest available figures, the proportion on floating was just 42.5%.

In a better place

But while you would expect that proportion to shrink further in coming months, the RBNZ is actually in a much better position at the start of this cycle than it was last time - remembering that in the mid 2000s the proportion of floating mortgages was very low (around 14%). 

With something over 40% of mortgage money on floating rates then any moves by the RBNZ to jack up the rates will quickly hit pockets.

Those looking to fix their rates now will find that already, in anticipation of rate rises, they are being asked to pay more on fixed rates than they were before Christmas. 

With bank swap rates having moved up something like 50 basis points (the one-year rates) since the end of October, the effective fixed mortgage rates as measured by interest.co.nz have increased by 23 basis points since the end of last year to a new effective average rate of 5.45% for one year.

On the move

So rates are already on the move as our efficient financial markets anticipate what will happen.

The only real question is how much of any increases in the OCR from the RBNZ will be fed directly into mortgage rates. The banks themselves, perhaps a little glibly, are currently talking as though all of them will.

But competition for banking business is very tight and it only takes one bank to hold out against the tide for the full cost of RBNZ increases to not end up in mortgage rates. Obviously if one bank holds out with lower rates they will tend to attract a lot of new customers away from their competitors.

Therefore while banks may technically see the need to increase their rates in line with OCR moves they will first and foremost have to consider their competitive positions - so they may well hold rates down if competitors do that.

So, while this writer's best guess would be that certainly the first OCR hike will be fed directly into new higher mortgage rates, it cannot be concluded with any certainty that all the future rises we see this year will be.

But unfortunately, nobody should be ruling out 7% rates by next Christmas either.

"Be prepared" needs to be the motto for the homeowner in 2014.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Yes absolutely agree Hugh - fortunately some didn't listen to the stupid "two rates cuts coming" type comments made by the uninformed, and managed to get themselves locked away at low fixed rates back in the first half of 2013. However unfortunately too many over-leveraged borrowers just so wanted to believe those misguided comments and didn't act, and many will now be like rabbits in the headlights and freeze. In the end who cares what we think should happen, it's what the RBNZ does with the OCR, and what the market does with swaps/fixed rates, that's the only thing that matters to the mortgage belt.
Some will unfortunately end up gifting their homes back to the market at lower proves at some point In the future I suspect. Investors fine, surely they're meant to be "professionals", but young first time home buyers in particular I feel for and only hope the vast majority will be able to have some room to adjust their household budgets to accommodate - but for some I know that will be extremely difficult. Hopefully the RBNZ's timing will be right and the rise will only be modest and thereby not dampen the economy by more than it's intended to (and therefore hopefully not risk one partner losing their job) rather than a timing misjudgement that necessitates and more substantive rise which has been often the case in the past.

Certainly don't need to convince me Hugh, its scary and has all the classic symtoms where after the crash or substantial correction, everyone says "we couldn't be expected to see that coming"...or the other "well that was some obviously coming" having not for one moment having said or indicated so beforehamd. Its peoples inability to look at history that is the most scary aspect and many of them reside here.

When discussing China I tend to repeat myself over and over about its similarities to Japan's boom of the 1980s. I've been reading a little economic history recently and Japan heavily funded the US -CA back then just as China is now. It's uncanny how it's all unfolding in the same way. What is of concern is that Chinese households are avid savers much like the Japanese which has contributed to their deflation over the last 20 years. If there's a credit crisis in China there's no guarantee households will pick up the slack from a collapse in investment. In fact they could simply shut up shop which won't be good news for the commodity economies such as ours.

Hear, hear, Mike M.
Me too. Remember when one block of land in the middle of Tokyo was "worth more than the entire State of California" - and no-one said: "bubble about to pop......"!!

Your uncontrollable greed is palpable in this post. None of your posts ever show any empathy or regard for anyone else but yourself. I hope you lose everything too when the interest rates go up and the value of your "portfolio" collapses.

I see nothing that Mr Maybar said that would qualify as being a 'bigot'. Would you care to point out why you think that is the case?

Heck Maybar, that's pretty nasty... wishing ill on people.
Zany is not greedy. He writes well, from an informed perspective about the property industry and is organising himself to do well in the future. That seems sensible to me. He certainly wont be one to "lose everything."
And besides, you should be aware when interest rates go up that well-positioned property investors will not "lose everything."
In fact I am looking forward to rising rates, another part of the business cycle, and am positioning myself appropriately.
Oops... is that being greedy?

"Let's watch these first home buyers burn". Is that not wishing and hoping ill on people too. Those first home buyers are young people, some with young children already, just trying to put a roof over their heads and in the hope to own a house to live in in retirement. In your post you appear like a shark circling, waiting to pounce when "those first home buyers" have lost their homes. Sorry but plenty of property investors have lost everything, and usually it is the homeowners that manage to come out unscathed. All that equity built up over the last 12 months happened pretty quick, it could all drain away just as quickly too. Not saying it will, but it's possible.

Another factor: Election year -  incumbent politicians do not want rising interest rates affecting the mortgagebelt negatively.  
Outside of the Fonterra/Dairy industry, Chch rebuild & Auckland housing  -  the economy is still affected by the GFC and consumer caution. If a couple of OCR rises have an exaggerated effect on consumer spending & small business viability then this may mean backtracking.
A lot of mortgage-holders have kept their dollar mortgage repayments the same while interest rates have fallen over the last 4 years, so they always have the option of extending their term back to the original length thus blocking any monthly increase in repayments.
Interest rates may appear 'low' by comparison to the last 30 years, but they are certainly not 'low' on a comparative global scale, or in relation to a very fragile 'recovery'. We are still in an emergency setting economically, globally & locally.

Give me more "economic emergencies" such as these:
- GDP 3.5%
- 40yr record terms of trade
- 20yr high business confidence
- 8yr high consumer confidence
....and interest rates at historic lows ?


Always possible MB but you could die waiting.,..timing is always the problem in markets

"The Reserve Bank itself is currently indicating that it sees the OCR peaking at 4.75% in early 2016,"
I'm not sure how they can predict this far out. What evidence do they have to support that New zealand will maintain GDP growth >4%, inflation >3%, lower levels of unemployment and a falling dollar.
China, USA, Euro and even the Aussies sway much of what happens in our markets and who can determine that China doesn't hit the same rocks as the USA and Euro partners did.
According to Hugh's links above, that appears to have started... then what?
I appreciate the RBNZ giving Joe Public a heads up for higher mortgage repayments; however, the HH debt levels could be better managed. Gaining credit from financial institutions and banks is pretty darm simple... that's what gets people into trouble as they jump into bed with the next "2.99% on 6 months of your remianing balance" scenarios.
Where's the regulation in protecting consumers?
Perhaps GFC Number 2 will hit by early 2016... none of these prats running the big economies have learnt too much from past mistakes, they've just got smarter at hiding them. 

Hugh it is most likely in their genes.
Popular Labour Propaganda dictates that redistribution is highly beneficial BUT
Maybe Labour supporters haven't developed their frontal lobes and that is why they can only survive by restricting others.
And if you look at this graph on income taxes - there will be enormous problems down the track  if income taxes are raised on the rich in NZ.
He who controls the cost of money controls the price of everything.

Most overvalued
Australia’s housing market was the fifth-most overvalued among countries in the Organization for Economic Cooperation and Development relative to rents, the International Monetary Fund said in a December report.
The leader is Canada, followed by New Zealand, Norway and Belgium. Prices in Australia’s biggest cities, home to two-thirds of the population, have risen 26 per cent since the start of 2009, according to the RP Data-Rismark index.

Now you are going to take us all down.

Could you provide the link for this "fact" please.
Wheeler needs to get his head around the fact that the governement will borrow $40 billion to rebuild.

................... Still waiting spottie ?

Indeed Grant.

Yet you continue to spin the line that the $40b figure is the Government's contribution.
Why Zanyzane, do you continue to spread this ?
Show your reasearch that states the Govt is borrowing $40b to fund the rebuild.

15 seconds on google finds Treasury: total cost of chch rebuild $40 billion. Government contribution $15.2 billion. Of that $5.5 billion is already allocated.

Scaremongering ? With China and Aussie set to slow down, New Zealand's new found confidence is not going to last long. Would be a wrong time to raise rates, with elections also looming, to snuff out the nascent recovery. A bit of inflation is not a bad thing, but manipuation with OCR has never succeeded. Not going to happen.

I think the RB will put up interest rates 25-50 base points in the next few months but no more. They will worry about house price and construction inflation and inflation from the high milk payout and they would not want to delay and then be forced to do it prior to the election if the stats get really bad. But constraining them will be the fears you discuss above.
So I believe a small increase then a wait and see pause until after the election.

Brendon, who knows but I doubt that will be the way it will pan out. Assuming that we don't have an offshore related shock that could stop any interest rate rise at all (the only thing that will to my mind), although Wheeler's concious of the politics of rate hikes, the history of RBNZ suggests that once they decide to go they will move consistently to reach the required level based upon the data as they see coming out along the journey - perversely that's what the "no rate hike" deniers are best to hope for, an immediate negative impact on the economy, but history suggest it never impacts that quickly even allowing for the fact that we're more heavily over-leverage this time round (not something to be proud of).
Wheeler's background, and some personal observations of him since he's been in the job, suggests to me that there is alot of steel in his character and he won't be side tracked by an election if he think the job needs to be done over 2014, but he will be flexible.

Grant A I am not expert on these matters, it is just my personal opinion. I wouldn't want to gamble any serious money based on my thoughts. It could easily go as you say.

Hey Brendon, there are no experts in knowing what's going to happen (well maybe a couple on here so we are quite priviledged),  just some that understand the process and factors involved better than others. You could well land up being right and its good to speculate so long as we respond to the other points of view if they're logically presented to us as you seem to do.

What if the milk price falls, causing the NZD to fall, thus causing inflation of all imported and exported goods? The RBNZ would then need to raise interest rates more than we currently expect.
One thing that seems to be overlooked that is supporting the milk price is the US maize to ethanol subsidy which is keeping the price of maize high. When this is reviewed/cancelled then US dairy will expand on the back of cheap maize, flooding the market with cheap milk. Yes, I know it's not likely to happen due to the fossilised nature of US pork barrel politics but these things do change rapidly at some point.

but our exported goods are then cheaper abroad? and since our manufacturers have a higher earnings per capita/worker?  Of course the killer would be the debt the dairy farms own, a drop would be painful I'd think.
I dont think the ethanol subsidy will be "reviewed" Too many votes to be lost in critical states....so that would be some shock.  In addition it also of course keeps other US grains high.  If they did it would take some years for teh US to build stocks up?  say 2 or 3 anyway?  not what I'd call a "shock"

My understanding is that many imported prices have not come down any where near the rate that the dollar has gone up. The manufacturers, agents and retailers in the middle have lifted their margins. It could well be therefore that prices would not go up proportionately with a drop in the exchange rate. If inflation was then a threat, the Reserve Bank either has the choice to look through some of the effects- like the Bank fo England over the last 5 years- or then to put interest rates up. Manufacturers and import substituters should have more margin to cope, and some rebalancing of the economy would start.
Don't hold your breath for a material drop in the NZD for now. While we have free capital flows, and are willing to mortage/sell assets freely to foreigners, (and still have assets to sell) the exchange rate will always be at a level where the current account is minus 3 to 6% of GDP.

I hear what you are saying, but there does seem to be a slow domino currency/bond crisis spreading from the periphery towards the core. The last crisis was most unusual in that it spread from the core to the periphery. The current situation is much more normal; where peripheral nations get into trouble when their debts/overspending confront a falling commodity price. My guess is the tide has turned but the water has not receded here just yet.

Can you please show me when an inceasing OCR has coincided with falling house prices?
Infact, at over 9% floating in mid 2000s house prices were still rising.
The only senario I can think of for this to happen is for dairy prices to keep soaring and genuine wealth flowing through the nz ecomony (via farming as manufacturing will not be getting any help as nzd passes parity with aud) so OCR will need to continue its upward march even if housing starts to fall.  I can tell you that if this happens it will only be auckland that will see falls and reasonably priced provincial cities with strong farming support will keep marching higher, very similar to what we saw from 2004-2008

Read the article. Current owners bought the land for $2.2mio in 2003 - very close to the top of the market - and proceeded to build the house. The article doesn't mention how much they spent on the build
When they first put the house back on the market in 2012, they wanted 12mio - nothing to indicate if this is greed, opportunism, or trying to recoup what they spent.
One of the owners is quite ill, I imagine they're trying to raise money for the treatment. It's just unfortunate they need money in a hurry. Every vendor who needs money in a hurry will price their property reasonably.....
Nothing to say this particular 'drop' is due to the looming raise in interest rates.....

Why doesn't NZ have 15 year / 20 year / 30 year mortgages like the US...say get your 5.5% and then be done with it....Seems crazy that we only go out to 7 years and the 7 year rate is always ridiculously high...would seem more stable to me

They did, thats exactly the way it was once upon a time, back when housing finance was supplied by the Life Insurance companies, AMP, MLC, Nat Mutual, Prudential, Goverment Life, Tower Life, etc, and Building Societies, that was until the banks got in the act and took over those same life Insurance companies and the Wealth Management industry

Rising Interest rates are a great way for our government to attract overseas investment which inevitably winds up in property. Pumping wind into the balloon of property servitude.
I now think of average "Kiwi" property investors as idiots because every $1:00 that they profit from property gains comes with the expence and slavery of their children in the form higher mortgage obligations.
Oversea's investors, I can understand - they just want to financially rape our youth who they have no moral responsibility towards and make a quick buck for themself.
It is truely a pitiful endevor. And for our elected government to endorse it, what does that say about us Kiwi's as a socially responsible society.

Haw haw ....interest rate rises for for the mortgaged "sheeple" double haw haw !
More bank profits for MOI !!
Must keep those FHB's and over leveraged PI's down there,  strangled under the grip of a mortgage that will only only increase ....haw haw  !!    
Debt free in 10 years ....ppffffft .... there is as about as much chance of that than moi catching a bus !! 
HAW HAW  ....what a wonderful world it is :)

What makes you think that an interest  rate increase of around 2% (as predicted) is an event of armageddon proportions ?
Its happened before , and we are still here , most of us still living in our homes .
In my working carreer rates increases have happened  many times, sometimes by huge margins that look terrifying .
You adjust accordingly , it simply means tighter household budgets , no new cars or boats , less wasteful spending , and for some closing the credit card account for a while .

Haw haw ...yes and tighter household budgets means more money for the banks !! HAW HAW HAW .... TRIPLE HAW HAW
Have a delightful day mortgage serfs ..... while I just salivate on my increased bank royalties, from the comfort of my Architect designed and awarded beach house,  here in Kaanapali,  Maui on the ol' Sandwich Isles  (Hawaii for those who are geographically illiterate...haw haw)  ...... the tradewinds have just come up creating that lovely "whooshing" sound ..... just like the sound of US $100 bills being counted by those machines at the Bank .... haw haw
toodle pip

Champagne - how do banks make more profits if the RBNZ hikes the OCR considering that they will be paying their depositor more, ie those that fund the borrowers ? It certainly will increase their credit risks on some of their overly leveraged borrowers so I can't imagine that they will love rate the idea of what's coming in terms of hikes. 

GA. what makes you think that borrowers fund debtors? The bank always wins for exampleeven when they go bankrupt the share holders get bailed out a-la Cabturdury Finance

Roadhouse - what has a finance company being bailed out got  anying to do with my response to Champagne's post on banks profiting from higher interest rates or not ? There must be some other thread you can post that to if you have a thing about the financ e company bail-outs ? I'm totally mystified.

you seem under the misinformation that banks somehow would have to change their "credit risks" on lending simply because the borrowers become stressed with a rate rise and are less able to repay the obligation. All I'm pointing out is the extreme example that a bank did go bank rupt and still it's investors are secure with government bailouts so really they don't care about the OCR  - the bank always wins.

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