Recent suggestions are that UK banks and building societies will come under increasing pressure to reduce their fixed mortgage rates after government bond markets began to increase rapidly. Analysts in the bond market have recommended that, as a result of the rise in the price of government bonds which is causing an attendant and converse relationship to yields, lower mortgage rates should automatically follow.

The feeling running high among UK mortgage brokers is that the banks and building societies are simply holding tight from reducing interest rates for as long as possible, in order to earn some extra profit on the backs of the hard-pressed British home owners who are carrying equity on their property. These large financial bodies are manipulating swap rates, used to set fixed-rate mortgages, and which currently account for about half of the mortgages held in the UK.

Swap rates define the cost incurred when a bank or building society alters or "swaps" from a floating interest rate to a fixed rate. Two years of fixed swap rates fell recently by 1.95 percent to a low of 0.785 percent, taking a plunge of nearly half a percentage point since the beginning of August – the lowest level since records began in 1985 – while five-year gilt yields fell to 2.43 percent. As government bond yields have fallen, it would follow that the swap rates should also have dropped, in line with them. This event is taking too long to happen, mortgage analysts claim, while adding that the banks have also shown a determined reluctance to pass over reduced borrowing costs to potential customers, as long as demand for mortgages outstrips supply.

Five-year swap rates also fell to 3.33 per cent, close to a drop of 0.5 percent. These falls were driven by forecasts that official interest rates would remain at historic lows of 0.5 per cent and speculation that the Bank of England might even introduce negative interest rates on commercial bank deposits.

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Tags: Bank of England, British Economy, British Pound, building societies, Credit, Debt, Economy, Financial News, government bonds, home owners, Interest Rates, Loans, Money, Money Management, mortgage brokers, mortgage rates, Mortgages, Swap rates, UK Banks, UK Economy, UK government

The British pound continues to fall sharply against the dollar as foreign exchange traders predict that the UK economy will continue to lag behind that of the US and the 16-nation Eurozone.

UK short-term bond yields have hit all-time lows as analysts begin to predict that the Bank of England may go as far as to introduce negative interest rates on its deposits in an attempt to encourage lending to the wider economy.

On that piece of stunning news, Two-year gilt yields, which have an inverse relationship with price, fell to 0.83 per cent – the lowest level since records began. Commercial banks have begun to transfer cash deposits at the Bank of England into gilts. Mervyn King, governor of the BoE has strongly hinted that he is considering charging banks for holding deposits at the central bank because he fears the quantitative easing initiative is being undermined by commercial bank’s lake of desire to circulate money into the economy through increased lending.

According to information issued by the Office for National Statistics (ONS) one in six UK families have at least one unemployed, making for the highest rate since 1999. The number of households where at least one person is unemployed reached 3.3 million in the second quarter of 2009, a rise of almost a quarter of a million from the previous year, with the north-east of England being the hardest hit.

Lord Mandelson has once again displayed his desire to put the UK taxpayer’s money where his mouth is, by announcing that he is willing to invest heavily to ensure commit taxpayers’ money to, in exchange the long-term survival of Vauxhall, about to be sold off by General Motors, the American car group who are in liquidation.

The Business Secretary has again reiterated his pledge of financial help, around £500 million to any one of the three parties interested in buying the UK branch, and save its 5,500 jobs.

The minister is insistent that the party that receives taxpayer funds will be the one that produces a business plan protecting most of the Vauxhall workforce for the long term.

On the FTSE yesterday, it was reported that the U.K.’s mortgage lender, Lloyds Banking Group Plc may have no option but to write off £500 million on loans made to Admiral Taverns Ltd. The news did not inspire the market and their stock fell 0.1 percent, to 107.8 pence.

The FTSE 100 had a flat day’s trading, falling 26.22 points to 4,890.58, while the FTSE 250 took a sudden reverse, dropping 77.60 points to close on 8,783.21

Sterling continued to weaken on Wednesday’s trading, on reports that it was being hindered by poor financial results in the UK.

• Pound/US dollar 1.6228
• Pound/Euro 1.1391
• Pound/Japanese Yen 151.8732
• Pound/Swiss Franc 1.7324

In the US, the latest indications that the state of the world’s largest economy is growing increasingly positive came with the news that sales of durable goods and new home sales both soared last month, Durable goods orders were lifted by the popularity of the government’s "cash for clunkers" car scrappage scheme, helping US car orders to rise 0.9%, in July.

At the same time, the annual rate of sales of new US homes rose 9.6% last month, the biggest rise in sales of new houses since September last year.

On Wall Street, markets drifted from the morning’s highs during the afternoon, with the Dow Jones Industrial Average and the NASDAQ Composite index both gaining a further 0.3 per cent to 9,539.29 and 2,024.23, respectively.

The Bank of Japan announced on Wednesday that the volume of their exports rose by 2.3 per cent in July from June as stronger demand from Asia and replenishment of inventories boosted manufacturers.

The data suggest that Japan may enjoy another quarter of respectable economic growth from July to September, after last week’s report that output rose at an annualized rate of 3.7 per cent in the April-June quarter

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Tags: Admiral Taverns Ltd, Bank of England, Bank of Japan, Banking, British Economy, British Pound, cash for clunkers, Dow Jones, Durable goods, Economy, Financial News, FTSE, General Motors, Global Credit Crisis, Lloyds, Loans, Lord Mandelson, Mervyn King, Money, Money Markets, NASDAQ, Office for National Statistics, Recession, Sterling, Stock Markets, UK Banks, UK Economy, UK Recession, Vauxhall, Wall Street

An increase in July of more than 75% in the number of home purchase loans approved by British banks, made for the most encouraging figures since February 2008, while net mortgage lending growth remained as its weakest level since the year 2000.

The British Bankers’ Association announced 38,181 mortgage applications were approved in July in comparison to 35,564 in June and up from 22,248 in July when demand for properties in the UK were are at an all time low. In addition, average loan values rose from 136,400 pounds in June to 139,700 pounds.

This month’s statistics add further proof that the housing market may be entering into a period of continued stability; however analysts hastened to temper enthusiasm by pointing oath that mortgage approvals remained below the average and were indicative of falling property prices.

Bovis Homes recently reported that they have moved into a positive cash situation, and for the first time in two years, yet another sign that of recovery in the UK’s hard pressed domestic construction industry.

The group’s who were holding a net debt package of £8 million at the end of June, are now in funds to the tune of £7 million.

It appears that the Royal Bank of Scotland have hit a stumbling block with the proposed sale of their retail and commercial assets in China to their preferred bidder, Standard Chartered. The company had entered exclusive talks with the RBS last month to acquire assets in China, India and Malaysia, and were excited at the prospect of closing the deal "within a matter of weeks " However reports now have it Standard Chartered and now a lot less enthusiastic about the deal than they were, which now appears to have been put on hold.

British steel-maker Corus announced recently that they intend to kick start production at its Llanwern works in Wales. Their decision was prompted by a revival in the demand for steel, as the global economic downturn eases and generates a rise in the price of steel. Corus, Europe’s second-biggest steel concern, are to restart production at their hot rolling mill, shut down in January due to lack of demand.

Reactivating the plant will not mean that 500 or more jobs cut by Corus at the time when they put the plant in mothballs will automatically be restored, as the company claims that their operating costs have since risen.

Home improvement chain Focus DIY has reached an agreement with their creditors, particularly their landlords, which will save them from administration.

An overwhelming majority of the company’s creditors voted in favour of the company’s proposal to enter into a Company Voluntary Arrangement (CVA).

Under the terms of the CVA, an increasingly popular insolvency process, Focus will be able to reduce annual overheads by £8.6 million by shedding leases on 38 stores where the company has ceased to operate, and in return Focus has offered their landlords partial compensation. In addition the landlords of the company’s 180 stores have agreed to accept monthly rather than quarterly rent payments until 2011.

Focus, acquired by Cerberus, the US private equity group, has been carrying a heavy debt burden which has been exacerbated by a marked reduction in consumer spending.

On the FTSE, optimism lifted shares in Diageo, producers of Smirnoff vodka and brewers of Guinness beer up 0.9 per cent to 971½ pence, in anticipation that results due to be issued on Wednesday will show that the company’s sales have taken a turn for the better. Demand is expected to be on the increase among US wholesalers with Diageo looking to increase their market share.

Shares in National Express rose to their highest level since January, gaining 3.5 per cent to 395 pence, as speculation increases that that any break-up bid could value the transport group at as much as 450 pence a share.

Shares in the Royal Bank of Scotland rose by 3.9 per cent to 54 pence, fired by speculation that the bank may try to buy back some of the seventy percent stake held by the UK government.

Profit taking weighed on car insurers Admiral Group, whose shares dropped by 2.6 per cent to close on 1044 pence, after the company released first-half results that exactly matched analysts’ expectations. The company’s stock has gained 20 per cent recently.

Increased US consumer confidence and housing data helped the FTSE 100 reverse to close up 20.57 points, at a new 10-month high of 4,916.8, at its highest level for the year. The FTSE 250 rose by a further 28.92 points to close on 8,860.81

Sterling continued to weaken on Tuesday’s trading, remaining in a 10-week trough against the Euro,

• Pound/US dollar 1.6329
• Pound/Euro 1.1429
• Pound/Japanese Yen 153.6205
• Pound/Swiss Franc 1.7364

The Obama administration is bracing for a political backlash on Tuesday when it issues national debt numbers showing federal debt rising by $9,000 billion over the next decade, a figure significantly higher than forecasts made earlier. In addition the both the White House and Congress have warned that US budget deficit will soar to almost $1.6 trillion (£978bn) this year, the highest on record,.

Fuelled by President Obama’s $787 billion stimulus package and reduced tax revenues due to the recession, this year’s deficit compares with $455 billion for 2008.

The White House also expects that US unemployment will pass a 10% figure during 2009, before slowly beginning to decline in 2010.

US stocks once again rose to record heights for the year on Tuesday as encouraging economic data was enough to keep the rally going as well as optimism sparked by Ben Bernanke staying on for a second term as chairman of the Federal Reserve.

The Dow Jones Industrial Average and the NASDAQ Composite index both gained 0.3 per cent to 9,539.29 and 2,024.23, respectively.

Commodities markets ticked lower on Tuesday as investors paused for breath following the recent run higher in anticipation for a swift and sustained world economic rebound.

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Tags: Admiral Group, Banking, Bovis Homes, British Bankers Association, British Economy, British Pound, Cerberus, Congress, Construction, Corus, Currency, Diageo, Dow Jones, Economy, Financial News, Focus DIY, FTSE, Guinness, Loans, Money, Money Markets, Mortgage, mortgage application, Mortgages, NASDAQ, National Express, Obama, Property Prices, Royal Bank of Scotland, Smirnoff vodka, Standard Chartered, Stock Markets, UK Banks, UK government, US budget, White House

Although your bank manager will tell you that he or she is your friend, and that they have your best interest at heart when they cut your overdraft or credit card levels, don’t believe them. The truth is that banks thrive on people who are in financial trouble and know exactly how to play on your weakened situations to continue to feed their insatiable drive for profit.

More so, that when you go to them on your knees asking for just a little more leeway, they will already have made sure that you will find it difficult if not impossible to find alternative finance elsewhere, and will take full advantage by providing you with additional finance at horrendously high interest rates.

The UK public must surely have learned one expensive and painful lesson from the current financial crisis and that is to keep the credit under control, and to try to do so by achieving and maintaining a credit rating that is as pure and white as the first snows of winter.

And believe it or not, despite prodigious efforts by the FSA to prevent this from happening, lenders, be they banks, building societies or credit card companies, are pooling their efforts to make sure that people who have fallen into debt in the past will find it very difficult to improve their credit rating.

There is, and always has been, a great anomaly about how finance providers look upon a potential client. If someone has money, why should they need to borrow it? Yet in many cases it is sensible to borrow money, particularly for a mortgage, or to buy a new car or even some major household appliance. Banks carry out tens of thousands of transactions every month, although secured loans are much less attractive to them than unsecured loans, where they can make more than twice the interest.

The sad truth of the matter is that if people are in severe financial trouble the last place they should set foot in is a bank, building society or credit card company, except to ask for an extended agreement on the same terms. Under no circumstances should they agree to accept a new refinancing agreement which will certainly be on prohibitive terms.

Only time will cure most people’s problems, and eventually better times will come. In the meantime it is everyone’s interest to keep the head down, draw in the belt even tighter, and repair each credit status. Learning to be less credit dependent will be a challenge for all of us, but it will be justified by never having to bend your knees to your bank manager again.

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Tags: bank manager, Banking, Building Society, Credit, Credit Card, Credit Crunch, credit rating, Current Account, Debt, extended agreement, Finance, finance providers, financial trouble, FSA, Interest Rates, Loans, Money, Money Management, Mortgage, Mortgages, negative equity, Savings, UK Banks, UK Credit Cards, unsecured loans

Liquidators of the bankrupt Wall Street merchant bankers, Lehman Brothers have posed some questions to Barclays Bank Plc that may cause the bank no little discomfort. The questions, set by Bryan Marsal of Alvarez & Marsal charged with liquidating the company, are around the estimated $3.3billion that the UK bank received when it acquired part of the Lehman Brothers towards the end of last year.

The latest incident has only added to the considerable tension that has slowly built up between Alvarez & Marsal representing Lehman Brothers creditors and Barclays Plc.

The $3.3billion allegedly earmarked to meet bonuses and other liabilities incurred before the bank’s collapse represent a considerably larger sum of money than the $1.5billion that Barclays paid out when they acquired the North American division of the investment bank, after Lehmans filed for bankruptcy protection in September 2008..

Alvarez & Marsal’s decision to raise questions on Barclay’s policies is expected to further strain the relationship between the liquidators and Lehman Brother executives who were retained by Barclays Capital, the Bank’s investment banking division.

Recent communications between Bryan Marsal and Rich Ricci, Barclays Capital’s CEO stated that under the terms of the takeover agreement Barclays were due to receive more than $2 billion to meet outstanding bonuses payment an severance pay for their employees. According to information garnered by their company, Marsal now ascertains that Barclays were obliged to pay out a mere $700 million for severance pay and bonuses together.

In total, Barclays Capital is being asked to explain how this difference of $1.3 billion was arrived at, as well as to why a further $2.3 billion was transferred to the UK after the takeover was completed. Marsal and Alvarez claim that of the $4.3 billion transferred, a total of only $900 million has been used for its intended purpose.

As if by coincidence, Barclays Bank Plc, in their 2008 results announced last month showed a profit of £2.3billion, or $3.3billion on the disparity of their valuation between the assets and liabilities that they acquired from their purchase of the division of Lehman Brothers and the price that they paid for them. As part of an overall picture of Barclay’s trading picture for 2008, this gain was seen to account for around 30% of Barclays’ pre-tax profits. As far as Barclays Capital was concerned it meant the difference between a $2 billion loss and a profit of £1.3bn.

Lehman Brothers Holdings, the only division of the bank’s core business still being managed by them, through Alvarez & Marsal, announced that they were not making any allegations regarding unfair practices by Barclays Capital, but simply exercising their right to request factual information from the bank regarding possible discrepancies.

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Tags: Banking, Barclays, Economy, Global Credit Crisis, Loans, Money Markets

The Government is preparing to lend money directly to businesses from January.

Leader of the House Harriet Harman revealed the move as she told MPs about a new small business loan guarantee scheme.

“It’s true to say that, while lending figures are starting to show increasing lending to small businesses, there are still businesses having problems,” she said.

Small firms borrowing from a bank will receive cash from the Government, which will effectively be acting as a bank.

The Government is likely to provide more than half the cash firms need, with banks expected to come up with no more than 25%.

The move reflects frustration among ministers that businesses are still finding it difficult to get the credit they need, despite the Government’s £37 billion bail-out of the banks.

The proposed new scheme would apparently enable the Government to get round the problem by cutting out the banks and providing firms with the credit directly.

Meanwhile bankers who have stacked up billions of pounds of losses at Credit Suisse will receive their annual bonus based on the worthless investments they made on behalf of the bank.

About 2,000 investment bankers will share a bonus with a face value £3.1 billion that is not worth the paper it’s printed on.

This is a novel way of a bank saying thank you to the people who, along with many other speculators, are responsible for the worldwide recession.

The bonus is paid in bonds that have no value as the market for trading them has collapsed

The bank says the idea is that if the bonus is based on sensible lending decisions, then the bankers will win as the bonds mature in value, but if not, the staff will pick up the reward they deserve.

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Tags: Bank, Bank of England, Banking, Credit Crunch, Interest Rates, Loans

Homeowners who fall behind with their mortgage repayments after losing their jobs or suffer a drop in income can take up to a two-year repayment holiday under a new Government backed scheme.

Announced in the Queen’s Speech, banks and building societies making up 70% of the mortgage sector have signed up to the scheme.

The Government and lenders still need to iron out the final detail but the outline of the plan is:

·      Mortgage payers who are made redundant or face a significant income loss will qualify

·      Loans up to £400,000 are covered by the scheme

·      Lenders will manage the scheme and make decisions based on common guidelines about granting repayment holidays

The scheme comes in to force in the New Year.

By then the details should be clearer, like exactly what a ‘significant loss of income’ amounts to and whether the self-employed are also covered.

The objective is to reignite confidence in the housing market and reduce the number of repossessions.

The Council of Mortgage Lenders, that represents the UK’s bank and building society lenders, speculated that repossessions could rise to 75,000 next year. The CML estimates that repossessions will end up at about 45,000 properties for 2008.

The CML has welcomed the government’s safety net scheme, and promises that ‘won’t pay’ borrowers will not be able to avoid their responsibilities.

“Instead, it will provide welcome reassurance to the vast majority of borrowers that the government and lenders are doing all they can to help keep people in their homes,” said a spokesman.

British house prices tumbled at a record 16.1% in November, according to figures released by the Halifax showing that prices fell 2.6% in November compared to October, and are now 16.1% lower than in November 2007.

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Tags: Borrowing, House Price, House Prices, Loans, Loss of Income, Mortgage Lenders, Mortgages, Repayment

The Government’s is set to crack the whip over banks refusing to lend fairly to homeowners and small businesses after bailing out the banking sector with a £500 billion rescue package.

New powers for fining banks that breach the banking code are expected as part of today’s Queen’s Speech in Parliament as part of several major financial changes included in a new Banking Reform bill.

Now the Government has a major stake in the Royal Bank of Scotland, HBoS and Lloyds TSB, there is a new determination to make sure the banks don’t squeeze small businesses and homeowners facing hardships over loan repayments due to the credit crunch.

The existing code of conduct sets out minimum standards banks must provide. This includes lending responsibly, giving help for customers who hit problems and more transparent bank charges.

The plans will allow the Financial Services Authority to police the banks and penalise them with unlimited fines for breaking rules or refusing to improve their service.

Royal Bank of Scotland was told yesterday that its lending policy, boardroom appointments and business strategy were under review as the government took control of 58% of the bank.

Meanwhile the bank promised to grant a six-month cooling-off period to homeowners struggling to keep up with mortgage payments. The move was welcomed by the Treasury and is expected to become an industry standard.

HBOS announced new support for businesses this morning. Small and medium-sized firms who are Bank of Scotland customers will be offered funding worth £250m, which will be available at up to 0.8% below standard lending rates, and guarantee pricing on small business customer overdrafts for 12 months from the date of arrangement for new loans and renewals.

On the markets, the FTSE closed up 58 points at 4123 and the DOW recovered 270 points to 8419. The Pound weakened against the US dollar to $1.47 and against the Euro to 85.74 pence.

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Tags: Bank, Bank Charges, Financial Issues, Lending, Loans, Mortgages, Overdraft

Without loans and credit, the world would not have advanced so much since the second world war. Arguably, people would still be yoked to a agricultural based economy and we would still be doffing our caps to the local landowners. 

But now, at the time of writing, it’s obvious that too many loans and too much credit can have a bad effect as well. Simply, when money gets tight and credit gets tight, people cannot expand as they once did, both personally and in business, and things start slowing down. Then the trouble starts.

But the fundamental principle of a loan remains sound. Someone, or something, has spare money which they can use more productively than putting under the bed, or getting a low savings interest rate, by loaning someone else for a higher interest rate. Everyone’s a winner.

And even in economically challenged times, all loans just don’t stop. The world keeps spinning and money keeps moving. And although the UK mortgage market has virtually collapsed (at the time of writing), this really is based on new mortgages; re-mortgages are still being written.

Now, in goods times when lots of money is around, there are usually lots of loan opportunities around. Ironically, when bad times hit and money is sparse, and arguably, loans are needed more, opportunities are harder to come by.

And now we also have a new financial term called sub prime. In the last boom it became obvious that with clever marketing, financial institutions had in many respects exhausted the mine of people that could well afford, mortgages, loans, pensions and finance deals. They had been tapped out. So, a new rich vein of opportunity was needed and thus the sub prime sector was invented. Looking back of course with 20/20 hindsight, the financial services sector was just building a time bomb which would eventually explode, but with the bonus culture at full pelt, who was going to cry foul? So, people who could barely afford to survive from month to month, were offered mortgages to buy their own homes. The pack of cards soon began to wobble when, en masse, these people handed back their keys and the sub prime lending panic was upon us. And low and behold, the institutions had happily sold these mortgage liabilities to all their friends, meaning that great banks and financial bodies were all holding a piece of the bomb.

Right, so now we are in a new economic climate with loans few and far between. And the big question, are they worth the risk?

For some there may  be no choice. If you have a business, or a personal financial situation that requires regularly funding, you cannot just stop. You have to try and arrange new funding and even if you succeed, you might find the new interest rate punitive.

In many respects, running a business, or trying to keep afloat, necessitates loans and credit supply, so pat advice saying do not get further geared (the amount of credit you might have) is not helpful. For some people, it’s a question of keeping the whole show on the road until good times return. And they will. If there’s one thing that history has taught us, it’s that the boom and bust culture has never left us, despite assurances from the politicians. 

But if you are looking for a loan, or mortgage for the first time, and it’s not a matter of life and death, think really hard about whether you can afford it. Take a critical look at your finances, consider the doomsday scenarios (redundancy, illness) and if you feel comfortable with those, then go ahead, if you can.

And also have a quick look over the abyss, make sure you know what happens if you default on a loan. On a secured loan, you default and you can’t renegotiate the terms, then the security that backs the loan is lost to you. But even if your loan is unsecured, the lender can still take you to court, and force a County Court Judgment against you, which in effect, means a ruined credit record and little chance of future loans for at least six years, if not for a lot longer than that.

So the risk of getting a loan can be great; it really comes down to whether you can afford it, or not, and what happens to you if its goes wrong.

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Tags: British Economy, Loans, Mortgage, Mortgages, Unsecured Loan

Sliding in property prices are slowing down, according to the UK’s biggest building society.

Nationwide released figures showing home prices fell by 0.4% in November, compared with 1.3% in October.

The year-on-year fall has also stalled at 13.9% against 14.6% a month earlier. This is the first time property prices have stopped falling since October 2007.

The average home costs £158,442, £25,000 less than a year ago, but £25,000 higher than November 2003.

French estate agents say the UK property slump has crossed the Channel as British buyers have dropped 50% this year.

Britons hold 29% of the 260,000 foreign-owned homes in France, and have a huge influence on sales.

Overall, French property sales fell from 10% to 15% over the first nine months of this year, according to estate agent association Fnaim.

In the UK, mortgage lending is still shrinking. Approved home purchase mortgages was down to 21,584 in October, 52% lower than a year earlier.

Nevertheless, while interest rates are falling, Northern Rock has increased mortgage rates. 

The troubled banks woes are based on arrears on home loans of up to 125% of the value of a property.

These make up a third of the Rock’s mortgage book, but half of the number of mortgages in arrears and three-quarters of repossessions.

Rock bosses told a committee of MPs investigating the banking crisis they wanted to lead the way in helping people avoid losing their homes.

Bradford and Bingley were also in the spotlight before the committee as major buy-to-let lenders with mortgage arrears standing at 3% over the industry average.

Both lenders were quizzed about their controversial lending policies.

Committee chairman John McFall, closing the session, told Bradford and Bingley chairman Richard Pym: “I believe you have inherited a shambolic organisation with a giant headache.”

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Tags: Banking, Loans, Mortgage, Mortgages, Property Prices, UK interest rates