The City is betting on the previously unthinkable prospect of interest rates rising within months. Investors are gambling that rates will have to increase from the current level of 5% to bring inflation under control. Most had previously expected rates to fall to about 4.5% by the end of the year. Investors now fear that at least two, and possibly even three, quarter-point base rate increases are on the cards. City economists said that at the very best all hopes of an interest rate cut this year are now out the window.
Archive for the ‘Credit crisis’ Category
City predicts imminent base rate rise
Thursday, June 12th, 2008Repossessions to soar by a quarter
Monday, April 28th, 2008Home repossessions will soar by almost a quarter this year as the credit crunch bites, a leading economic consultant has warned. Around 33,400 people could lose their homes during 2008 - 23% ahead of last year - the Centre for Economics and Business Research (CEBR) said. Mortgage deals are also set to remain expensive until the pressure in money markets eases, according to the group’s latest consumer and housing prospects report. The warning comes despite the Bank of England’s £50bn bid to tackle the crisis last week by allowing banks to swap their riskier assets for safer ones in an attempt to kick-start credit markets. Until the mortgage finance starts to flow again, the outcome will be a reduction in house prices and an increase in repossessions.
Nationwide increases minimum deposit to 10%
Monday, April 28th, 2008
Nationwide Building Society is today reducing its maximum loan to value ratio (LTV) to 90% on all of its products for new borrowers except its three-year fixed rate and three-year tracker mortgages. New borrowers will need at least 10% deposit on all their products except the two mentioned above. New customers wanting to take out the group’s standard variable deal, which it calls its base mortgage rate, will now need a deposit of at least 25%, while the maximum amount the group will lend on any of its mortgages to new borrowers will be capped at £500,000. The two remaining products that Nationwide is offering to people with a small deposit are only available by going direct to the lender and cannot be obtained through brokers. Nationwide described the move, which takes effect from May 1, as part of its ‘ongoing approach of managing the business in a prudent and sustainable way’.
How to avoid the negative equity trap
Wednesday, April 23rd, 2008Here are a list of what you can do:
- If your mortgage is interest-only, switch to repayment asap. It will be more expensive in the short term but will save you thousands in interest in the long run.
- Pay extra on your mortgage every month. This will reduce the debt and cut the interest that you are charged each month. But check how much you are allowed to repay penalty free.
- If you want to repay more than the bank will allow penalty free then put the extra cash into a cash Isa first for tax free savings. This can then be used to bolster your equity when you want to move home or remortgage.
- Don’t be tempted to borrow from other sources such as credit cards to repay your mortgage.
For more information, visit thisismoney.com
Mortgage approval slumps as banks run out of cash
Wednesday, April 23rd, 2008In a year, mortgages for people buying a home have dived by 46% as Britain’s banks run out of money to lend. Figures from the British Bankers Association (BBA) showed mortgage approvals for house purchase in March tumbling to its lowest figure since records began in 1997. This shows the extent to which banks are tightening their belts as they find themselves unable to secure funding for mortgages. Borrowers needing to remortgage or purchase a home are finding lenders have raised rates to reflect their own higher borrowing costs and increase margins on mortgages. Many are also demanding higher deposits to protect against house price falls and to raise the quality of their loan books. The rising cost of securing funding on the money markets has seen the inter bank lending rate Libor rise to 0.9% above the bank rate of 5% - the historical average is 0.13%. This has substantially pushed up the cost of new tracker rate mortgages, which are heavily influenced by Libor. The BBA said it expected lending to continue to weaken due to the continuing decline in mortgage approvals.
London’s negative equity locations
Sunday, April 20th, 2008The London postcodes at greatest risk from the housing crisis was revealed today by the Evening Standard. Tens of thousands of home owners across the capital will be plunged into negative equity this year if property prices fall by 20%. People who have taken on huge mortgages compared with the value of their property will owe more than the building is worth. The worst hit would be buy-to-let investors who tried to cash in on the housing boom, according to analysis obtained by the Evening Standard. Below are the top 10 streets and London boroughs most likely to be affected. Find out more at thisismoney.co.uk.
Top 10 London streets most at risk:
Calderwood Street SE18
Erebus Drive SE28
Queenstown Road SW8
Woolwich Common SE18
St Saviours Estate SE1
Glashier Street SE8
Greenhaven Drive SE28
St John’s Estate N1
Great Dover Street SE1
Borough High Street SE1
Risk level by London boroughs:
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£5k fee to take out your next mortgage
Wednesday, April 16th, 2008Homeowners are facing fees of up to £5,000 to take out a mortgage. A devastating report released yesterday shows that the average cost has almost doubled in a year. Interest rates charged by banks have also gone up. Separate Government figures out yesterday brought further bad news in that house prices are falling at their fastest rate since records began. After all the panic in the mortgage market, people may be tempted to grab the best headline rate deal but the fees must also be taken into consideration. HSBC charges up to £5,000 for its recently introduced ‘Rate Matcher’ deal, which lets homeowners whose current fixed-rate deal is about to expire get the same rate with HSBC for another two years. The mortgage meltdown continued yesterday with the number of deals available falling to just over 4,000 from 15,599 last summer.
Halifax defies plea by PM and raises its loan rates
Wednesday, April 16th, 2008
Britain’s biggest mortgage lender today defied Gordon Brown’s plea to cut mortgage rates. The Halifax is raising rates on some mortgage offers by 0.5% despite his calling bank chiefs to No10 to urge them to sign up to the Government’s strategy to tackle the global economic turmoil. The Prime Minister was also bluntly warned that a string of building societies could be forced out of the mortgage market by the looming crisis. Mr Brown is said to be prepared to offer banks help to raise funds but wants them to pass on interest rate cuts, do everything they can not to repossess the homes of people struggling to meet their mortgage payments, and to offer loans to first-time buyers. The Bank of England is injecting a further £15bn of liquidity into the markets, taking its total recent support to more than £50bn.
Fastest rise in cost of food in almost 20 years
Tuesday, April 15th, 2008Families already struggling to cope with the credit crunch face huge increases in food bills because of global shortages. Costs are rising faster than at any time since 1991 (when there was a recession driven by sky-high inflation and interest rates) and the average shopping bill is likely to go up by £600 a year. Added to the impact of higher charges for mortgages, heat, light, water, petrol and council tax, the average family is likely to have to find an extra £1,500 a year, just to stand still. Worldwide food shortages have been caused by increased demand from countries such as China and India, together with poor harvests linked to droughts and floods. A decision by farmers to turn over their land to the growing of biofuels is also a factor. While biofuels have been presented as the solution to global oil shortages, they are now contributing to a lack of food. Some countries have suffered food price protests, while a number of nations are imposing limits on exports to protect their own supplies. The big question for British shoppers surrounds the extent to which supermarkets and other retailers will pass on the price increases. While profits will suffer if they swallow the rises, sales will inevitably fall if they pass them on.
Lenders raise rates despite cut by the Bank
Saturday, April 12th, 2008The Bank of England cut its base rate by o.25% to 5% on Thursday to stop the economy’s slide towards recession. However, relief for home owners was instantly undermined by a new wave of mortgage rate increases from Britain’s biggest lenders. Many lenders are yet to pass on the recent base rate reductions - instead they are busy increasing rates, demanding larger deposits, tightening lending criteria and, in some cases, withdrawing deals from the market altogether. Most of the big lenders, including Halifax, Nationwide, the Woolwich, Cheltenham & Gloucester and First Direct also said within minutes of the Bank’s announcement that they will be cutting their standard variable mortgage rates by the full 0.25%. Both Nationwide and Alliance & Leicester are believed to have been overwhelmed by applications from borrowers coming off cheap fixed deals and want to choke off the demand with yet another big increase of upto 0.35% in less than two weeks. The increases followed similar moves from Woolwich, Halifax and Abbey.
