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Mortgage rates: why are they rising and who'll be hit?

Update: Santander has become the latest bank to hike its standard variable rate. Are more increases are on their way?

 

by Victoria Bischoff on Aug 22, 2012 at 16:12

Mortgage rates: why are they rising and who'll be hit?

(Update) Santander has today become the latest mortgage provider to increase its standard variable rate (SVR) – joining the Bank of Ireland, the Co-operative Bank, Clydesdale and Yorkshire banks and Halifax, which have all announced increases to their SVRs.

But why is anyone increasing their rates when the Bank of England's base rate is still so low?

Santander

Santander today announced plans to increase its SVR by 0.5% from 3 October.

The move, which will push up the bank's SVR from 4.24% to 4.74%, will cost customers an average of £26 a month more for a £100,000 mortgage and £42.54 a month more for a £150,000 mortgage. 

The Spanish bank also revealed that it will be increasing its SVR cap margin – the maximum amount above the Bank of England base rate it can charge – from 3.75% to 4.99% from 24 September.

This is the second time Santander has increased its mortgage rates this year. In March the bank increased the interest rate on four of its mortgage products – the two-year fix and tracker deals at 60% LTV and 75% LTV sold though its Abbey Intermediaries channel – by 0.10%.

The increase, however, only affected new customers – there was no change to existing customers’ rates.

Co-operative Bank

The Co-operative bank announced back in April that it would be raising its SVR by 0.5% from 1 May.

This pushed its rate up from 4.24% to 4.74% for some 54,000 customers, costing them an average of £15 more a month. 

Co-op said the increase was a result of 'changing conditions in the mortgage market' and an 'increased cost of funding'.

Bank of Ireland

Bank of Ireland, which includes Bristol & West, increased its SVR by 1.50% for around 100,000 customers.

The change is taking place in two stages, with rates increasing from 2.99% to to 3.99% in June, and then to 4.49% in September.

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35 comments so far. Why not have your say?

darren fox

Mar 05, 2012 at 15:07

once again banks taking customers for a ride will hbos reduce the svr when funding becomes cheaper?

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Badger

Mar 05, 2012 at 17:48

Halifax, which is part of the Lloyds banking group, claims it has had to change its SVR due to the increased cost of raising money to lend customers.

Why not charge more to new customers?

If you already have a loan then why should you pay more. Surely its not existing borrowers who are buying more expensive money. What industry surcharges you on something you have alreedy purcahased. This is a farce.

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clarkkent

Mar 05, 2012 at 18:11

Thank goodness we don't have a mortgage any more, but when we did, we had a Virgin One account (RBOS) and it was absolutely brilliant, albeit a bit more expensive, but the flexibility was very, very useful.

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Michael Brooks

Mar 05, 2012 at 18:11

If all the banks follow suit, what is the incentive for the B of E to keep base rate as low a it is?

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Dislexic Landlord

Mar 05, 2012 at 18:12

The Banks will always find ways of makeing money is anyone really suprised

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David Trigg

Mar 05, 2012 at 18:27

Please forgive this rather naive comment but I thought one of the ideas of QE was that banks had access to more money such that they could lend it across all sectors.

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Chuck

Mar 05, 2012 at 18:28

People are showing a lack of understanding on banks, finance, and where the money came from to bid up the prices of houses.

@darren fox - yes, they will come down if the cost of funding reduces and the industry is competitive enough. However, take note, the SVR was not intended to be used as the main borrowing mechanism by costumers (it was more of a bridging loan rate between explicit mortgage deals). It is a sign of our times that people think it is normal to sit on the SVR.

@Badger: No, it is not a farce. If an existing borrower is sitting on the SVR, they are no longer in the mortgage deal (fixed rate, discounted, tracker) that they original arranged - so the funding structure has changed. Those on SVRs can leave at anytime. As with darren, it is a sign of the times that people are complaining about a product “feature” that is not being used as intended.

And yes, the cost of funding mortgages has increased. Remember, the Special Liqudity Scheme has finished now just a month ago – coincidence?

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Tony Peterson

Mar 05, 2012 at 18:37

No sympathy.

The new mortgage rate is still under the real rate of inflation, so savers will still be being hammered in real terms to subsidise borrowers.

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Clive B

Mar 05, 2012 at 18:54

Have to say I'm with Tony Peterson on this one.

Much as I can see why the BoE had to prop up the banks and the property bubble, the impact was

-borrowers have had their costs reduced massively, to generational lows, saving them £££s

-savers (particularly pensioners, luckily I'm not one yet) have had their incomes reduced massively, costing them £££s.

Do I feel any sympathy that the gift to borrowers may be coming to an end ? No, not at all. Everybody knew it wouldn't last (and no reason why it should)

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Badger

Mar 05, 2012 at 18:58

Double standards from banks as usual. Take deposits from people and dont bother to automatically transfer them to another account on the same terms with a different name and a better rate.

The government moan about the lack of OMO business yet deposit takers rip people off on savings accounts. Why not have auto transfer on cash accounts to a better rate if available. No they rely on everyone shopping around all the time while they pocket billions on pathetic deposit rates.

By the way Chuck if borrowers care to go elsewhere then the lender will have the capital back to lend out again, but of course most people cant switch anymore as the costs lock them in. Lenders have got it sussed, screw you over the term or get a big fee to switch

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Paul M

Mar 05, 2012 at 18:59

Notice who has increased, RBS, LLOYDS and SANTANDER. These are all businesses with huge debts themselves and I wonder whether institutions are getting nervous lending to them and only them?

There is no case whatsoever for raising interest rates at the moment you only have to look at Japan. They haven’t been able to grow their economy for the last 2 decades and they produce things. We are relying on overtaxed consumers who haven’t had a pay rise for 3 years to grow ours.

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Irene Jones

Mar 05, 2012 at 19:18

Why is the monthly repayment more for interest-only than repayment mortgage as a result of this increase? Shouldn't it be the other way around? Thanks.

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James Button

Mar 05, 2012 at 20:25

Banks, Building Societies, and other mortgage loan facilitators? offered borrowers a vast range of options on their borrowing.

It was up to them, the borrower, to evaluate (with paid advisor is they chose) and decide, based on the conditions, costs and associated risks which deal they would accept.

A limited selection included:

BoE Base + uplift

Fixed for short, long, or the entire term of the loan

Lender variable rate for all, or part of the loan period

Fixed period, or get-out when you want, with associated fees, and charges.

Yes - I believe the increase will be unexpected by many, BUT they had a choice of selecting a rate that was fixed, or an uplift on the BoE rate.

If they chose an option that was cheaper at the time they chose it, but included a rate increase possibility at the lenders option, then that's what they chose.

Same with savers - the options include

Instant access

Access after a notice period

Access with a penalty

Set period

Interest to be:

At a set rate,

Tracking on the BoE

Short term Bonus

Bonus at the end

Tracking on the FTSE

-----

Basically,

You choses your saving organisation and terms and hope things go your way, rather than the borrowers way.

You choses your lender & Loan conditions and hope things go your way, rather than the lenders way.

Then you pray that the Government doesn't do the dirty on your investment, borrowing, and the ability to repay.

AND

You hope the regulator doesn't get their stubby fingers into the agreement

As above - The mortgage lenders are dependent on the savers and the repayment of the loans.

Insufficient income means they cannot lend - so they have to set rates as appropriate.

Considering the BoE rate - is the BoE lending banks, or anyone, money for reasonable periods, or even at all at the rate they set!

Is so, I'd like to borrow several million - well several thousand million please!

Now - if you want to see 'nasty' consider the changing Credit card terms-

Was £5 min, not £25 min repayment a month

More of the 'transactions' are at the higher rates - £20 from a cash machine will cost £10 'cash advance' fee + £3 for the issuing of the note from the hole-in-the-wall

Get a £1 lottery ticket at the checkout with your £70 shopping - That's a cash advance trransaction now - £10 charge for that, and higher interest rate accrues until you pay off the entire balance.

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Anthony

Mar 05, 2012 at 20:38

The cost of borrowing for banks has become more expensive, yes true, but then its been fluctuating for the last 2 years, fixed and tracker rates have changed accordingly, so why have HBOS increased their SVR by 0.49%, which is huge when you look at other lenders changing fixed or tracker rates by 0.1 or 0.2 % max??

The BoE rate is unlikely to change over 2012, possibly not until 2013, so why change the SVR??

One possible answer is HBOS want to 'capture' those existing borrowers where they are coming to the end of their current deal, or who have been on the SVR for sometime, and keep hold of them in new fixed and tracker deals, rather than let them swan around on a relatively cheap rate (SVR) without paying any huge £1000 arrangment fees.

It is scaremongering existing clients, conning them into paying up un-neccessary fees to increase their income.

The banks get away yet again...

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M D

Mar 06, 2012 at 09:19

All these borrowers moaning is just sooooo boring. They should count themselves lucky. Many were stupid enough to borrow well over what they could afford, and if the BOE hadn't stepped in and artificially kept rates low for the past few years, they would probably be on the streets, and that's where they should be; then they'd have a reason to moan.

A figure of some £70billion is given for the amount savers have given up to bail out overstretched homeowners. Imagine that money was given back to savers to spend in the economy. We would happily buy up the repo homes of the idiots who deperately bought at high prices they couldn't afford.

As someone who didnt enter the market because we saw house prices rocket out of control over the short years after starting work. It's just frustrating that the people who have been prudent by saving and not overstretching are being penalised. The option of taking advantage of the crash has been taken away from us. It seems the best way forward in this country is to spend all you have, then let .gov bail you out when you hit trouble. Hardly a recipe for success!!

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Theologistic

Mar 06, 2012 at 09:42

One couldn't agree more with @chuck: SVR has never been and certainly shouldn't be perceived as a platform for the relationship metaphor of 'keeping your options open'. If you want to play the field, that's fine but if you want to invest in a relationship and settle down, have the strength of courage to live by your convictions.

Who said love and money can't exist in harmony, well, a forum post at any rate.

I'll cast your mind back to a time when the One Account was seen as a sneaky 'holding' product for intermediaries and customers alike due to its great flexibility and zero tie-ins. This is when it was hailed as ground-breaking and award-winning. Strangely enough, the product hasn't changed in the slightest, attitudes have.

If you want a product, sign up for it. If you want to expose yourself, sit on SVR. Here's hoping that this latest development cattle-prods the cattle of this country out of limbo and into action, investing in the institutions and stimulating themselves into something more meaningful than a fumbled, drunken snog and a grope behind Britain's collective bikesheds.

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Georgio Kopaloadadis

Mar 06, 2012 at 10:17

The SVR should be well known to mortgagee's, at the end of your deal, when your lender slips you onto a higher rate. Most mortgagees in this recsssion have had it easy, while the prudent have suffered, the time to moan is when it is like the seventies when interest rates & mortgage rates were well into double figures, so I am in agreement with Chuck, though it is sad to see society is now 'every man for herself'', [that's about as PC as I get]. The issue with senior bank management is the key here, until they have in place a framework for properly measuring bonus's versus value creation and performance and perhaps voted on or vetoed by their employees or capped by law, rather than a seemingly inappropriate way, they will deserve the criticism

However those who should be top of the gripe tree are the taxpayer & pensioner that is prudent and whom funds much of this for banks, but also our governments too, that they then waste. The way our society is going, I will not be surprised if the menfolk of our country, complain about the impact women had on the pension system - though actuarilly, I would agree, they have a point.

Satic nunc?

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Chuck

Mar 06, 2012 at 10:56

Badger “most people cant switch anymore as the costs lock them in”

People cannot switch because they are over leveraged (even after 3 years of SVR/BoE interest forbearance), NOT because of costs (of switching). They over borrowed and now they cannot switch to a new mortgage deal in the new (correct) era of lending.

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John Roper

Mar 06, 2012 at 11:37

Don't you mean for whom and why?

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John Lacy

Mar 13, 2012 at 12:47

I think that a lot of you are missing some basic facts.

The lenders are still trying to reduce their own borrowings--the last figures that I saw had Halifax holding £1.40 in mortgage borrowing for every £1.00 that their investors had in their savings accounts so they are having to finance the difference. They've increased their SVR to try to solve 3 aspects in one hit. Firstly if they make more money they have more money to pay for their own borrowing costs which are rising (mainly because of the Euro crisis). Secondly so that they can pay a little more to get money in to their investment accounts to reduce the figure that they need to finance and thirdly to shed some of their borrowers to other institutions again to reduce the figure that needs financing. The same applies to RBS and some of the others.

The only one that has a bigger outside influence is Bank of Ireland---can you imagine the pressure that they are under from the Irish government on whom they depend for funding to stay afloat---How can they justify giving the UK mainland cheap mortgages when the Irish tax payer is stumping up the funds?

I appreciate that this is a somewhat simplistic view of the overall problem but it may be a change to try and see the other side of the coin rather than spew out ill-informed bile by the gallon.

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Jonathan

Apr 03, 2012 at 12:28

4% is still dirt cheap when you consider inflation has been running at 5%. A figure of 7% would reflect a realistic rate if it wasn't for the BOE artificially keeping interest rates low with QE.

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MC

Apr 03, 2012 at 13:09

Rates are going up across the board for one simple reason, political pressure to keep rates low is finally being eased. This is because the government is starting to appreciate that the Banks will have to start making profits if we are ever going to be repaid the billions for bailing them out.

Also when Base was 5% banks charged 6% a 1% margin it would seem? No as at the time banks were only paying customers 0% for current account balances and 2-4% for most deposits. So real margin was more like 3-4%. Where there was a shortfall in deposits to loans money on the capital markets was also cheap. Add to this all the fees banks were taking for new loans and the profit margin was even higher.

Currently SVR's across board are heading to 4%. Because 1) No new loans = no fees 2) money markets remain closed to some banks and expensive to the rest 3) savers (if they bother shop around) can still get 2-3% 4) risk of losses on mortgages much higher.

In a nutshell Banks have been taking losses on their SVR's for the last 3 yrs so stop complaining and get real. Just be glad Base isn't 13% like in the early 1990's!

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Jonathan

Apr 03, 2012 at 13:43

I believe the government will always care about keeping interest rates low. Even if they get to the situation were there is no deficit they will still have to renew maturing bonds which they will have to pay interest on. So they will always want low interest rates. This is also the reason they are looking at producing 100 year or indefinite bonds. And also a reason they are addicted to QE.

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peter hart

Apr 03, 2012 at 14:52

£ in hoc signo vinces. Or maybe$

Bob Diamond et al

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Sheldon Cooper

Aug 22, 2012 at 17:06

As far as I'm concerned the mortgage arena is a joke - in what other area of personal borrowing does the rate of interest change so much as the life of the product progresses - for no other reason than the lender feels they aren't making enough profit from the money they've advanced you. Had I the means I could an buy a £100,000 car needing a £70,000 finance agreement and the ROI would be fixed regardless of the term of replayment. Do the same with the £70,000 called a mortgage and the rate can change as and when the lender sees fit. I accept that the value of the money leant changes in real terms over the long term, but not to the extent that the lender needs to up the rate potentially twice, or more, in the space of 12 months.

I'm sorry I also have no sympathy for the Banks profit margin, when a Company can say their profits have dropped to £6bn, i think they're still making ample money!!

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Jonathan

Aug 22, 2012 at 17:16

the banks can borrow the money from the BoE's QE scheme at 0.5%. they then lend it out at 3% or more. there is a small amount for admin and low risk of loss as deposit must be provided on house. but that's how they make billions.

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Anonymous 1 needed this 'off the record'

Aug 22, 2012 at 17:37

Imagin what it must be like inthe USA, where the Banks are still unable to recover the collateral on the assets they had to write down 100%. Why not introduce mutli-generational mortages like they have in Gemany, that way, the next generation can have a 50% equity left to them in an originally Ninja'ed mortgage!

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Lucky me

Aug 22, 2012 at 17:42

Correct me if I am wrong but I thought 0.5% of 100,000 is £500 p.a. which is £41.67 per month and not £26 as stated.

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Jeremy Bosk

Aug 22, 2012 at 17:46

The banks have three major problems, aside from a complete lack of integrity.

Firstly they have been ordered to increase their liquid assets to cover potential future losses. This restricts the money they have available to lend.

Secondly they have enormous quantities of bad debts from the commercial property sector. They have no idea how much if anything they will recover on many of these loans. Some commercial property has fallen in value by 90 per cent in peripheral Europe.

Third they borrow short from depositors and lend long to mortgagees. Bank deposits have dried up thanks to inflation, unemployment and the rival attractions of investment in anything but cash.

If governments genuinely wanted to increase bank lending they would do several things:

Firstly, delay the imposition of the new capital adequacy rules.

Secondly, get the economy going again instead of persisting with pro cyclical austerity. This would require sacking Osborne the Obtuse and his alter egos elsewhere. So it will not happen much before 2014.

Thirdly, accept that Greece and other debtor countries do not have a cat in hell's chance of ever repaying their debts. Austerity simply decreases the ability to pay and the amount of debt that will eventually be written off.

There is some point to the moral hazard argument. So to guard against repetitions the Bank of England and its counterparts need a mechanism to point out that a bubble is developing and simply order financial institutions to choke off new lending. This was done in the 1960s with the hire purchase regulator. When the amount of borrowing for consumer goods rose too fast the government decreed that loan periods must be shortened meaning goods such as cars and refrigerators must be bought over say three years instead of five. It could quite easily be extended to mortgages.

A properly functioning auditing system in the EU and sensible conditionality on refinancing terms are also necessary. This means genuine fiscal union and loss of notional national sovereignty. I say notional because the markets have long ago replaced genuine national sovereignty. The alternative to European countries hanging together is that they will otherwise hang separately.

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Ryan McC

Aug 22, 2012 at 18:40

There seems to be a continuous verbal attack against those who over-borrowed in the boom years. I, by my own admission, am one of those 'stupid' (as someone refers) people who over-borrowed. I was 23 when i borrowed £135k to buy a property that is now worth approx £40k to £50k at most. Perhaps i could clarify to those who ridicule people in my situation why i over-borrowed in the first instance... 1) I was very naive obviously and had absolutely no financial education to assist me in my decision. I certainly didn't obtain a financial education in school as none was ever provided. 2) At the time of borrowing, I was brainwashed by the media, and the general consensus of most people was that the only way for property prices was up, up and up! Don't be left behind they said! In the light of this, did i foresee any bust? Certainly NOT! I didn't know a bust could happen! I had too little life or financial experience to anticipate what was to come 3) My purpose of borrowing was to purchase the property, renovate it, and sell it on at a profit. I saw this as an opportunity to better myself, not because i was greedy for money but because i never had any money in life, nor did my family. My plan was to use the proceeds from the sale of the property to set me up in a career as i had no family support or financial support from others to bolster my progression. Due to family difficulties, i had to move out of home when i was 17. When i needed help from the authorities back then, they didn't help me. Thus, i had to make it on my own. The problem was, I realised from quite a young age that you need money to make money. I didn't have any money so of course i grasped the opportunity to make a few pounds (albeit with naivety and an inadequate financial education). Do i regret my decision which landed me in such a financial mess? Absolutely NOT! Through experiencing such negative circumstances, i was able to stand back and look inside the box from the outside...and presto!!! I had the education i needed for the real world (albeit it has been an expensive one). I know of a few people who have actually committed suicide because they found no way out of their financial mess. I think this is very sad and it is certainly not an option that should be considered by anyone, regardless of how much debt they are in. People who find themselves in a financial mess are under enough pressure so they certainly do not require verbal attacks from others. People have their own individual reasons for over-borrowing. I find it unfair that people make prima facie judgments about those who over-borrowed. Like conceiving a baby, it takes two to make it occur. Similarly, a person over-borrowing is lending from a Bank that is over-lending! Did the Banks know they were over-lending? In my case, they certainly did. I am quite sure the Banks were well aware of their over-lending to many, many people. In fact, they offered me a 125% interest only mortgage but i only took the 100%. All in all, since encountering my financial mess, i am now financially educated in such a way that it is much more applicable to the real world than the education i received in school. I, like others, can learn from negative encounters (financial or otherwise). I took a risk in over-borrowing. Obviously, it didn't work. I should point out also that many of humanity's greatest achievements and advances have been derived from taking risks, and for that reason, i have no regrets!!! For any others who find themselves in a financial, or some other, predicament, never see your predicaments as negative; see them as challenges that can be overcome, and indeed see them as learning experiences. Also, to avoid getting into predicaments, like i have done, always do your research; educate yourself; critically think (something not taught in school) and foresee all possible consequences. Best wishes to all!!

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Ryan McC

Aug 22, 2012 at 18:44

On the third last line, 'getting into predicaments' should actually read 'getting into subsequent predicaments'...

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Tony Peterson

Aug 22, 2012 at 19:15

I sympathise with you, Ryan.

All of us have to come to terms with the fact that most of what people tell you, from your childhood, to adult life, is quite simply not true.

A bit of Cartesian doubt is called for from all of us. The financial media, the financial services industry, and pulpit orators are the worst offenders, but it starts with mum and dad (Larkin spotted that).

It might best these days be called the Paxman approach. Start off with asking "why are these bastards lying to me"?

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Ryan McC

Aug 22, 2012 at 19:55

Thanks Tony! People always find it easier to blame the 'little guy' like me because they are brainwashed into believing exactly that! Perhaps they feel too inferior to dare blame the 'big guy'. It is only when the curtains are open that you can see outside the window but unfortunately most people live with the curtains closed. It is through no fault of their own though; it is obviously intended by those few living on the outside of the window. A system (financial or otherwise) is socially created thus is contained inside a conceptual box. Anything within such a box can be manipulated with any desired outcome as chosen by those who control what happens inside the box. The mechanisms of the box are controlled by a minority who are obviously intent on keeping the majority oblivious to such a fact. In the US, approximately 10% of the population control 85% of the entire wealth. I'm not sure what UK or global statistics are. Fundamentally, the capitalist system on a whole is flawed, biased on an intent for the minority to control the majority of wealth. All the hype about a financial crisis, crisis x, crisis y, etc., etc., is merely a distraction, prohibiting people from learning the truth and facts about what is really going on. I accept that there will always be a "poor-----rich" continuum but the distribution of wealth is extremely unfair. Please people, open up the curtains and look outside the window of the box you are living in! Don't blame the people who participate in the 'system' that is manipulated for a desired outcome by a minority. If the financial crisis was not to happen, it would have been prevented. It happened so it was intended! If you are observing the "poor-----rich" continuum, you will see that the poor are getting poorer and the rich are getting richer. Don't be fooled like i was!

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Jeremy Bosk

Aug 22, 2012 at 20:50

Ryan

I too sympathise. There are a lot of self-righteous know nothings on these boards. Don't do what I do - which is try to reason with them - it is largely a waste of time.

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Forestbhoy

Aug 23, 2012 at 09:54

With interest rates being so low,many could have over payed and this would have lessened this hit when,as it had to,came...?

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