Some are questioning whether the financial turmoil has rendered the Bank of England powerless to direct how much the biggest financial names on the High Street charge for credit and pay customers for their deposits. For many, today’s predicted cut in base rate will be meaningless. While banks and building societies have been cutting savings rates, they have also been raising mortgage rates for new borrowers. The only people to benefit would be existing mortgage customers on the track rates which follows the movement of the base rate. The current market turmoil could however be providing banks and building societies with the opportunity to rebuild their profit margins after being hit (at various levels) by the subprime market. Once again, the consumers are paying for the cost of the financial industries’ imprudence.
Archive for the ‘Credit crisis’ Category
Has the Bank of England lost control?
Thursday, April 10th, 2008HSBC offers to match mortgage deals
Thursday, April 10th, 2008
HSBC has offered to match the interest rate of any borrower coming off their fixed rate deals. This will apply to both HSBC customers and those remortgaging. It effectively shields borrowers from the recent increases in the cost of home loans. The Rate Matcher will mean their existing fixed mortgage rates - down to a cut-off point of 4.54% - will continue for another two years. But the deal will only last for five weeks so mortgage borrowers need to act quickly to take advantage. It is only available direct to consumers as the bank does not offer its mortgage products through mortgage advisers. Borrowers can borrow up to a maximum of 80% of their property’s value (20% deposit required) and a fee will be payable depending on the rate fixed. A maximum of £250,000 can be borrowed via the Rate Matcher service, although customers with larger mortgages can take the remainder on a standard HSBC deal. The offer is only available for borrowers whose current mortgage deal runs out before the end of June. The offer is available from 14th April until 18th May. This is a pleasant change from the do-nothing attitude most big lenders appear to be adopting at the moment!
The last 100% mortgage has now been axed
Wednesday, April 9th, 2008
The last 100% mortgage on offer has been scrapped by Abbey following similar decisions by its rivals. Since the credit crunch began last summer, more than 70% of mortgage deals have disappeared. Before Christmas, 33% of lenders offered mortgages of 100% or more. Now the only remaining 100% deals, from Bristol & West and Bank of Ireland, do not qualify as ‘mainstream’ mortgages. They are aimed at first-time buyers and require a homeowner’s parents to guarantee the loan. Typically, today’s buyer must have a deposit of 5% or more. And to secure a competitive deal, 25% is needed, as lenders charge higher rates for those with smaller deposits.
Mortgage criteria getting tighter
Sunday, March 23rd, 2008Several small building societies have been restricting or halting lending as a result of the financial turmoil. With lenders’ funds drying up, higher deposits are being demanded from first-time buyers. The Co-operative Bank now demands a higher deposit by cutting its maximum loan-to-value ratio from 95% to 90%. Bigger lenders, such as the Halifax and the Woolwich, have slightly increased the interest rates on certain tracker or fixed-rate deals, while making other deals available only to those able to put down a 40% deposit. The Cheltenham & Gloucester, part of Lloyds TSB, has also raised the interest rate charged on some deals. More than a million fixed-rate deals, typically lasting for two years, are due to expire in 2008, which will add to demand. As a result, the smaller building societies are withdrawing deals instead of being swamped by demand. Those wishing to move house are being told to act fast on mortgage deals as lenders are changing their deals frequently, sometimes several times a week.
10,000 City jobs face axe and a wave of pay cuts
Tuesday, March 18th, 2008Banking giant Goldman Sachs, the world’s most profitable bank, known for having the best-paid employees in the City, admitted its pay and bonuses fund had shrunk by more than a third compared with this time a year ago (and by half so far this year) even though it had managed to avoid the credit crisis by selling off most of its subprime mortgages last spring. Economists warn that if Goldman Sachs employees are suffering, it is likely bonuses for other City bankers could be disastrous this year. This, as well as the 10,000 workers expected to be laid-off in the City this year will have a major impact on the London economy as big-spending bankers tighten their belts. The knock-on effects are likely to be in the property and art markets as well as in London’s restaurants and shops.
Feds slash rates to 2.25%
Tuesday, March 18th, 2008Today, the US Federal Reserve slashed interest rates by 0.75% to 2.25% in a desperate attempt to prevent meltdown in the financial markets. The decision followed the weekend bailout of Bear Stearns, which was saved by rival JPMorgan Chase with the help of Fed cash. The shocking demise of Bear Stearns has prompted fears on Wall Street and in the City that the credit crunch could claim yet another high profile victim as lending between banks dries up. The Fed had previously cut rates by 1.25% to 3% this year alone and pumped billions of dollars into the markets. Although this has so far done little to restore confidence or calm. There are great concerns that the Fed and other central banks are powerless to solve the crisis. Pressure is now growing on the Bank of England and European Central Bank to cut rates, although both are concerned about rising inflation. Official figures released showed that inflation in Britain rose sharply in February from 2.1% to 2.5%, leaving the City split on the Bank of England’s next rate call.
Homebuyers with no deposit are finding it tough
Thursday, March 6th, 2008Borrowers with bad debts are getting better mortgage deals than first-time buyers without a deposit. The cheapest deal for a first-time buyer with good credit history but without a deposit is with Bradford & Bingley - 6.89% with £999 fee. But a sub-prime borrower with missed mortgage repayments (in the past year, one of which is in the last six months), could get a rate of 6.69% with a £995 fee with Chelsea BS. However, those with a 25% deposit could get a rate of 4.75% from First Direct with a £1,498 fee. A year ago, 27 banks and building societies offered 100% mortgages compared with just 11 today at much higher rates. As the credit crunch hits banks and building societies, first-time buyers have been left out in the cold.
Government plans to grade mortgages
Wednesday, March 5th, 2008The Government is planning to use next week’s budget to introduce plans to grade all mortgages in a bid to kick start the wholesale money markets. Chancellor Alistair Darling is understood to be arranging the introduction of a new system under which all mortgages are graded, with the least risky awarded a gold standard ‘Kitemark’. Investors have been reluctant to buy mortgage-backed securities for fear they contain risky sub-prime loans and this has made it difficult for banks to remove mortgage assets from their books. It is hoped that by providing investors with greater reassurance about the quality of the loans they are taking on, it will make it easier for lenders to sell on mortgages to investors. The scheme could help re-vitalise the wholesale money markets and provide banks with access to cheaper funding, which subsequently could be passed on to consumers in lower mortgage rates.
Free financial advice for thousands
Monday, March 3rd, 2008The Government has pledged £12m for a large-scale trial of a free personal finance service that will offer general advice on issues such as managing debt, budgeting, retirement planning and understanding financial jargon on a two-year trial. The “money guidance” pilot project was the main recommendation of the final report of a 14 month long work led by Otto Thoresen, chief executive of life insurer AEGON UK which proposed an impartial, sales-free, personalised advice service to help people better manage their money. The report also claimed that consumers could be more than £15bn better off if they had access to financial guidance over the next 50 years. Over the same period, it could save the government some £6bn through reductions in Pension Credit payments and other benefits and also make the financial services industry £5bn because they would benefit from lower levels of bad debt, a better relationship with consumers and a reduction in advertising and selling costs. The recommendations come at a time when Britons have raked up a record UK personal debt of £1.4 trillion and are increasingly feeling the effects of the credit crunch.
Nationwide deposits up to 25%
Monday, February 25th, 2008Nationwide increased the minimum deposit required to secure its best rates from 10% of the value of the property to 25%. With the average price of a London house now more than £300,000, buyers will have to raise at least £75,000 up front. It is a major blow for first-time buyers in particular. The clampdown by Nationwide comes as banks and building societies tighten lending conditions following the credit crunch. Until today, borrowers needed only to raise a deposit of 10% or more to take advantage of Nationwide’s best rates. They now need 25% or more - or face an extra 0.2% of interest. The rise only affects new borrowers and wipes out the benefit they would have enjoyed following this month’s cut in interest rates by the Bank of England. Nervous rival lenders are set to follow suit as they chase margins rather than market share.
