The Bank of England held interest rates steady at 5.0% on Thursday, in a widely expected decision as policymakers tussle with the twin evils of a slowing economy and surging inflation. By keeping rates on hold this month, the Bank is buying itself a little more time to see what interest rate path is required to bring inflation back close to the 2% target from the current 4.1% over the medium term.
Archive for the ‘Credit crunch’ Category
Bank holds base rate held at 5%
Friday, July 11th, 2008Northern Rock offers first decent mortgage rate
Wednesday, July 9th, 2008
Northern rock has issued its first competitive mortgage rates since a run on the bank almost brought it to its knees last summer. It has two-year fixed-rate loans that, while not the very best on the market, are good enough to bring in new customers. For buyers there is a rate of 6.39% and for remortgagers a rate of 6.49%. Both have a £995 fee. The lowest rates for two-year fixed deals are available from First Direct and Yorkshire BS.
Northern Rock has been trying to move existing customers to rivals since last September. Its rates have got progressively more expensive as it tried to price itself out of the market to avoid taking on new business. These new rates are not available for existing customers. While these rates are not the very best, where they have a big advantage is that they are fully flexible, meaning you can overpay as much as you like without penalty.
£50k savings protection proposed
Monday, July 7th, 2008Chancellor Alistair Darling aims to raise the amount of money protected from the current £35,000 to a new ceiling of £50,000. Savers who lose money when a bank goes under will be given compensation within a week, instead of months. However, banks said making them pay up-front would divert vital capital away at a time when they were already under pressure from the credit crunch. So instead, the new scheme will borrow money from the public sector, if necessary, to enable quick payments. The Chancellor believes more generous protection will cut the risk of panic if a bank is rumoured to be in trouble.
Lloyds TSB and Northern Rock in mortgage deal
Sunday, June 15th, 2008
Lloyds TSB has struck a three-year deal to take on Northern Rock customers who are coming to the end of fixed rate mortgage deals. Certain mortgage customers will be offered the opportunity to switch to a Lloyds from July. The deal will assist Northern Rock in reducing the size of its balance sheet. Lloyds has set a maximum loan to value ratio of about 80% for the mortgages it will take on, but it said this will be flexible. The tax payers obviously have the rough end of the deal here - as Northern Rock which is now state owned will be left with the riskiest borrowers, just as housing repossessions are expected to rise. Northern Rock itself warned last month that arrears were rising and shifting customers could become more difficult as the economy worsens and rivals cut back on lending.
City predicts imminent base rate rise
Thursday, June 12th, 2008The 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.
Repossessions 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.
