First Direct returns to the mortgage market

May 19th, 2008

Another piece of tentative good news, this could become a habit. First Direct, which suspended its mortgage services to new customers six weeks ago, as begun offering them once again.

First Direct stopped offering home loans on 1 April after being deluged by new applicants as the mortgage drought took hold. It was the first bank to withdraw its entire mortgage range to avoid being swamped by new business, but it said it could now handle new applications after clearing its backlog.

First Direct’s parent group, HSBC, has been taking a big share of the market for new mortgages though its Rate matcher offer which has been pitched at people who are trying to move their loans from other lenders, such as the Northern Rock. It offers to match their expiring fixed rates and, according to the bank, has attracted four times the number of enquiries that it would normally receive.

As a result of the credit crunch most lenders have been rationing their lending by withdrawing existing mortgage deals and pushing up the price of the remaining loan packages they have on offer.

Typically, borrowers are now being asked to pay higher interest rates and to put down deposits of at least 10%. This compares with offers of 110% mortgages a little over a year ago.

The reason that these pieces of good news are only tentative is that there are plenty of other, more ominous, signs to go with them.

For example, The Royal Institution of Chartered Surveyors (Rics) has warned that the number of property sales this year might fall by 40% as new borrowers find it impossible to raise the money they need to buy a house or flat.

The return of First Direct to the mortgage market and the activities of HSBC demonstrate that first time buyers can still find the financing to buy their own home. The lesson is that buyers will need to save up a certain amount to use as a deposit rather than borrowing the full amount.

If anything this means that the market is once again orientating itself around providing a good service to sensible and reliable borrowers while high risk and imprudent borrowers will, quite rightly, find themselves with nowhere to go.

Posted in Personal Loans | No Comments »

The distant sound of war drums echo through London

May 16th, 2008

It may not have an alliterative hook to it but I believe that what the economy is facing should be called a squeeze rather than a crunch. Rising inflation is pushing the price of essentials such as food and fuel up, but the Bank of England (BOE) cannot lower the cost of borrowing to offset these costs to consumers in the economy without further fuelling that inflation.

This explains the growing tension between the BOE and Downing Street as for the first time since independence in 1997 a clash of interest has arisen between the political and economic power bases.

Government figures on Tuesday showed that the rate of consumer inflation reached its highest level in 13 months driven by high food and fuel costs. Mervyn King, the governor of the BOE, said inflation would probably stay above the government target of 2% for two years, hampering the economy.

One commentator announced that ‘the state of the economy has put the Bank of England in a tricky position, to put it mildly.’

If the Bank keeps rates where they are, then the outlook for growth will be dismal and the UK could be tipped into recession. If it cuts rates then its credibility as a ‘crusader against the wickedness of inflation’ could be severely damaged, especially as it expects inflation to be well above target later this year.

Mr King said that external factors, such as high food and fuel prices, and problems in the global financial markets and the subsequent credit crunch, were hitting the UK and would have a noticeable impact on the economy. ‘The central projection is for growth to slow sharply in the near term,’ he said.

‘The MPC must focus on bringing inflation back to the target in the medium term.’

It will be very interesting to see how a medium term outlook goes down with the Prime Minister. Having made the bank independent as the centrepiece of his first reforms Brown would have to be under considerable pressure to reverse that.

However, he has shown himself to be more than willing to buy his way out of short term political crises before and he has already shown signs of being willing to apply ‘pressure’ to the BOE.

The coming months could see a titanic battle between political expediency and economic necessity played out across London and the economic future of the nation will be hanging in the balance.

Posted in Personal Loans | No Comments »

Is this a sign of hope?

May 16th, 2008

After yet another week of unsettling yet ambiguous news from the markets a clear sign of hope has emerged. However, it is yet to be seen if it is a hope born of blind optimism or clear foresight.

On Tuesday, the Nationwide building society cut some of its fixed rate loans for new borrowers by up to 0.3% and now Abbey has become the second big lender to make slight cuts to some of its mortgage rates.

The Abbey is making the reductions in anticipation of a cut in its own borrowing costs. It said it hoped to benefit from the Bank of England’s recent plan to lend more money to commercial banks, in the hope of reducing their borrowing costs as measured by the London Inter Bank Offered Rate (Libor).

The Bank of England has cut its main interest rate three times since the beginning of last December, taking its base rate down to 5%. However, this has failed to free up lending between banks in the City’s financial markets.

As a result, the cost of some fixed rate mortgages, which hinge directly on inter-bank borrowing costs, has recently been pushed to its highest level for eight years.

According to the Bank of England, the average interest rate on new two-year fixed-rate mortgages, taken by new customers with a 5% deposit, rose to 6.94% in April.

These are the most popular sort of deals at the moment and their cost is now at its highest since February 2000. By contrast, borrowers with a deposit of at least 25% were being charged much less.

Although the cost of their deals has also risen in the past two months, they were being charged just 6.08% on average for their two-year deals, reflecting the reduced risk these borrowers present to lenders at a time when house prices are falling.

As indicators go this cannot be claimed to be anything like the large sigh of relief many borrowers were looking for and claims that the Bank of England may not lower interest rates again for several years because of inflationary fears reinforce this.

It seems that these rate changes by borrowers may be a sign that the worst effects of the credit crunch in the banking industry are over, unfortunately the worst effects of the credit crunch on the rest of the national and global economy have not even begun to be felt.

Posted in Personal Loans | No Comments »

« Older Entries

Newer Entries »