Money Saving Advice
- Northern Rock Nationalisation Under Fire
Rival banks are beginning to protest about the plans for Northern Rock, complaining that the nationalised bank could benefit from competitive advantages over them, taking business away.
MPs were also concerned that Rock was trying to attract new customers with offers above their homes’ worth, thereby running the risk of repossessions in the future.
This crisis doesn’t appear to be over for the Government as it would not deny claims that taxpayers face a £100mb bill for advice to be paid for from banks and lawyers during the quest for a buyer. Chief Secretary to the Treasury Yvette Cooper said: “I can't tell you what the figure is. But what I can tell you is that when a bank gets itself into trouble, inevitably there are fees and costs involved.”
As Chancellor Alistair Darling went into action in the Commons to push through emergency legislation to take Northern Rock into public ownership, he inevitably faced criticism from Conservative leader David Cameron who called for Mr Darling to be sacked. He said: “I think we have to ask ourselves, does this Chancellor have any credibility. Do people trust what he says?”
It was also, according to the Conservatives, amazing that Rock was still allowed to offer 125% mortgages, with a quarter of the debt unsecured. Rock’s interest rate on unsecured loans is 12.9%, whereas it is 13.1% at Halifax and 15.4% at NatWest.
Adrian Coles, of the Building Societies Association, felt that the assistance being given to Northern Rock by the taxpayer would 'lead to pressure being put on organisations that have not failed and do not need taxpayer support'.
CBI director general Richard Lambert, said: “It is critically important that state ownership of the bank should not be allowed to distort the savings market, through access to government funds on favourable terms.”
Prime Minister Gordon Brown re-iterated that nationalisation was a temporary measure. However, new Northern Rock boss Ron Sandler has stated that it will be 'some years' before the bank can repay its loan debts.
- Mortgage Lending Up In January
There has been a glimmer of good news for those in the housing industry, as gross mortgage lending went up in January, according to figures from the Council for Mortgage Lenders (CML).
Lending increased to an estimated £26.5bn in January, an 11% increase on the £23.9bn figure for December. The figure was still lower than most other months of last year.
Despite the snippet of good news, the CML said that it was expecting lower lending volumes throughout 2008, driven mainly by remortgage loans.
January lending figures are usually lower than those for December, but the increase comes on the back of a very poor December for the housing market.
CML director general Michael Coogan said: "Gross lending held up well in January. However, there is considerable uncertainty in the housing market at the moment and we expect lending volumes to be lower in the coming months." His forecast is for remortgaging to be stronger than for new mortgages in the short term. He added: "Home buyers might be more inclined to transact if their moving costs were reduced and the government has the opportunity to address this by raising stamp duty thresholds and cutting the rates of stamp duty in next month's Budget."
Nearly all indicators recently have pointed to a downward trend in the housing market. The number of surveyors at the Royal Institution of Chartered Surveyors (RICS) reporting house price falls was up for the sixth month in a row in January; the Halifax and Nationwide house price surveys both showed falls in house price inflation.
The UK's biggest mortgage lender, the Halifax, said that annual house price inflation was 4.5% in January, down from the previous month's figure of 5.2%.
According to Nationwide figures the annual price growth rate dropped to 4.2% in January, which was the lowest rate since December 2005.
- Millions Teeter On The Financial Brink
Rising mortgage payments and increasing debts elsewhere are pushing over ten million adults to the brink of financial ruin in the UK.
Research commissioned by financial website uSwitch.com reveals a distressing picture of problems for a large chunk of the population in the grip of money troubles. Around one in four have major concerns that their current borrowing levels are already out of control, or about to become so.
Around one in eight – 5.4 million – have missed a payment of a debt of a bill in the last six months, and one in ten have had a direct debit, payment or cheque bounce in the same time. Around 3% actually fear that they could lose their home.
The impact of the five interest rate rises between August 2006 and July 2007 have finally begun to have a damaging effect on people’s finances, with some £100 having been added to most monthly mortgage repayments, and all credit – loans, overdrafts, credit card rates – is higher than it was.
The situation has been made even worse by the global credit crunch, with banks and building societies pushing up mortgage rates even further, refusing more loan and card applications, and chasing more borrowers through the courts to pay their debts.
Further studies by Mintel and Moneynet.co.uk have backed up the findings of debt paralysis by uSwitch.com.
Britons now owe a staggering £1.3 trillion to financial institutions, with the average person seeing half of their take-home pay going on mortgage repayments and other debts.
Director of consumer policy at uSwitch, Ann Robinson, said: “This is crunch time for consumers and it couldn't come at a worse time of year. In the run-up to Christmas, traditionally one of the biggest periods of consumer spending, people are concerned about their jobs, their homes and their ongoing ability to manage their debts and bills. The days of easy credit and the ‘buy now, pay later’ culture may be numbered, but they will leave a painful reminder for those left struggling with debt. The credit crunch will claim casualties - it will be enough to tip some over-indebted households over the edge.”
- US: Merrill Lynch Posts Huge Quarter Loss
The losses from bad credit loans incurred by US investment banking giant Merrill Lynch were worse than it at first thought, at $3.4bn (£1.6bn). The losses due to sub-prime mortgages and loans to fund company takeovers were a massive $7.9bn, and Merrill admitted that it had had to take a more conservative view of the value of its assets backing the doubtful debts.
The result of this was that Merrill posted its first quarterly loss for six years, and put Merrill at the top of the list of worst affected institutions from the subprime crisis and credit crunch.
Merrill said: “This is due to additional analysis and price verification ... including the use of more-conservative loss assumptions in valuing the underlying collateral.” It cast some doubts over chief executive Stan O’Neal’s handling of the crisis.
The season of third-quarter results announcements is at-hand on Wall Street, and bosses there were working to try and come up with a standard method of valuing their loans so that the market could make a fair comparison of how the banks had coped. This change in Merrill’s valuation casts doubt on the success of that exercise. There had been some doubts about how low Merrill’s original estimate had been, and Bill Fitzpatrick, an analyst from Johnson Family Funds, said: “This is a bloodbath for certain. It speaks very poorly to Merrill's risk management practices. Clearly heads are going to roll, and I wouldn't be surprised to see meaningful near-term lay-offs.”
Lee Norton, analyst at JS Asset Management concurred, saying that the results brought questions about Merrill’s management, adding that they were paying the price of having reduced numbers of experienced professionals in Merrill’s debt departments, leaving inexperienced heads in charge.
As Merrill reported a net loss of $2.3bn for the quarter, O’Neal blamed sub-prime market uncertainties, saying Merrill was working to resolve the impact.
- Economic Downturn Looking More