Virgin Looking To Buy Northern Rock

October 12th, 2007

Well someone had to have a go didn’t they?. Sir Richard Branson’s Virgin Group are said to be be planning to take a majority stake in Northern Rock and rebrand it Virgin Money. Seems like a smart move by the ubiquitous Mr Branson; ditch the old name associated with long queues of middle England savers desperate to get their money out and replace it with the solid, fashionable Virgin brand.

Not that there is anything really wrong with Northern Rock, the business model is solid but they have been subjected to a fierce run due to rising interbank rates. Maybe Mr Branson could rename it Virgin Rock, with its own inbranch radio station!.

In case you’ve been living on Mars (or Necker Island) for the last month, Northern Rock is a UK bank which provides savings accounts, personal loans and mortgage products.

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Are Personal Loans Rates Going Up, Or Is This A False Illusion?

October 11th, 2007

The last few weeks have seen some bizarre action in the money markets, usually its the central banks that decide the course of interest rate changes, but now its been the commercial banks themselves that have steered rates higher. We are all now aware of what has occured with Northern Rock but why did it happen.

The story starts in the USA where a booming housing market, mortgage competition and easy lending crieria caused huge problems for a number of well known banks. These banks lent heavily to ‘sub prime’ clients (eseentially anyone who doesn’t have an excellent credit score), with rising interests these people have found it very difficult to keep up their mortgage payments and in many cases they began to default. The way that this debt was handled by the banks meant that there was literally no value to it and the banks themselves have ended up with colosall losses.

The losses and general sense of unease spread across the Atlantic to the UK where interbank interest rates, the rates at which banks lend to each other, began to rise, even though the Bank of England base rate was static. Northern Rock was a casualty of this because their business model is based on borrowing from other banks instead of using customer savings like other banks. So where does this all lead?

Well a few banks have withdrawn their lowest personal loans rates for the moment, mainly because they were offers which were expiring or were too low given the current situation, a few others raised their rates by about 0.5% but two days ago Barclays actually cut their rates for some personal loans. Now the situation is stabilising it looks as though the next move in interest rates from the Bank Of England will be down which will definetly ease pressure in the financial system and help borrowers.

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Lenders Increase Personal Loan Rates

October 9th, 2007

A host of lenders have raised their interest rates on personal loans, some by as much as 4%, as growing uncertainty in the financial markets takes its toll on the lending market.

A total of nine different providers have pushed up their rates in the last week alone, according to the financial comparison website Moneyfacts.co.uk.

The biggest rise came from Bradford & Bingley, where interest on loans between £2,000 and £3,000 went up to 17.9%, a jump of 4%.

For loans between £5,000 and £7,500, the building society raised its rates by 3.2%, up to 9.9%.

Repaying the loan over 36 months, the new rate translates to an extra £8 a month or £290 in total for borrowers.

Meanwhile, Cheshire building society and Derbyshire building society raised their rates to 9.9% – an increase of 3% – for loans between £5,000 and £7,500.

Northern Rock also joined in the rates hike, with an increase of 0.5% on loans up to £25,000.

Sudden surge

Lisa Taylor, analyst at Moneyfacts.co.uk, said the sudden surge in rates came as no surprise given the growth in consumer debt, interest rate hikes and general uncertainty in financial markets.

“To be honest, the changes this week probably more closely reflect the current financial market,” she said.

“There were some very low rates around before that, whilst being good news for borrowers, were unsustainable for the banks.”

Bradford & Bingley said it had held off putting up rates for 18 months and the new rises brought them in line with other lenders.

A Bradford & Bingley spokesman said: “The current financial climate has certainly helped push these changes in the market.

“Although this looks like a big rise it actually brings us on a par with our competitors.”

The last nine months has seen a steady increase in the rates available for unsecured personal loans.

Up until four months ago, rates of less than 6% were available. However, the lowest rates now stand at around 6.9%.

Lisa Taylor said borrowers should consider looking elsewhere if personal loan rates continued to go up.

“Don’t assume a personal loan is always the best method for refinancing or making purchases on credit,” she said.

“There are still some great 0% deals to be found in the credit card market, with up to 15 months’ 0% on purchases and balance transfers, but these only make financial sense if you are looking for short-term borrowing.”

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