mortgage-sense.net

The Bank of England today embarked on radical moves known as ‘quantitative easing’ - equivalent to printing an extra £75b of money and pouring it into the economy, in an aggressive new phase of its battle to combat Britain’s economic slump.

In a landmark decision that signals a determined stepping-up of its campaign to end recession and bring about a recovery, the Bank confirmed it is beginning a strategy to pump £75 billion of newly created money into the economy over three months.

The ground-breaking step came as the Bank’s rate-setting Monetary Policy Committee also pushed interest rates to yet another historic low.

The MPC ordered another half-point cut in base rate from an existing 1 per cent that was already the lowest in the Bank’s 314-year history to a new all-time low of 0.5 per cent.

But the focus of interest on today’s crucial decisions from the Bank was on the move to press ahead with the measures of so-called “quantitative easing”, or “QE”.

These have become necessary in part because with interest rates having been cut so sharply in recent months, the Bank is close to the zero limit below which rates cannot fall.

The green light for today’s drastic action was given by the Chancellor in a letter to Mervyn King, the Bank’s Governor, released today alongside the MPC’s announcement that it will immediately put to work its new powers to pump up the amount of cash and credit flowing in the economy in an attempt to jump-start growth.

The MPC’s decision to press on rapidly with QE, signalled a fortnight ago in minutes of its last meeting, means that it will now begin buying from commercial banks a range of corporate bonds (businesses’ IOUs) and Treasury gilt-edged stock or “gilts” (Government IOUs).

The Bank will pay for these assets by creating new money, electronically, in a modern-day version of running its printing presses.

The freshly-created cash paid to the banks for these assets will be credited to their Bank of England accounts. In turn, the banks should be able to make new loans to businesses and consumers backed by this increased funding.

Michael Cooke, mortgage specialist at The Money Helper, commented “Consumers who are in a position to remortgage but have been watching the base rate movements carefully to pick their moment should really be thinking about acting now, as SVRs are still not moving and the BBR has almost nowhere further to fall. From here on the likelihood is for future rate movements to be upwards, so there’s no better time to lock in a fixed rate deal to ensure a good & stable rate is in place before rates increase again.”

To find out what mortgage deals you may be eligible for, fixed or otherwise, request a free mortgage quote from The Money Helper online or by phone on 0845 003 0065.

Tweet This Post 

Figures from the Council of Mortgage Lenders released today show 40,000 people lost their home last year, representing 1 in 290 mortgages and up from 26,200 in 2007.

75,000 repossessions forecast for 2009 remains unchanged.

Around 10,400 properties were taken into possession by first charge mortgage lenders in the fourth quarter of 2008, down from 11,100 in the previous quarter but up from 6,900 in the fourth quarter of 2007, according to the Council of Mortgage Lenders. The total number of first-charge repossessions in the year was an estimated 40,000. This was 5,000 lower than the CML’s original forecast for the year.

The fact that there were 11% fewer repossessions than expected, despite a worsening economy and rising unemployment, demonstrates that mortgage lenders are making strenuous efforts to ensure that repossession really is a last resort. It is important to recognise that repossessions include a proportion of abandoned properties and property fraud. They also include buy-to-let repossessions, as well as home-owner repossessions. In the vast majority of cases where home-owners are committed to working with their lender to keep their home, this outcome is successfully achieved.

At the end of 2008, around 182,600 mortgages - or 1.57% of the total - had accumulated arrears equivalent to 2.5% or more of the outstanding balance - for example, £2,500 or more on a £100,000 balance (a £97,500 mortgage plus £2,500 arrears). This compares with 1.29% at the end of the third quarter of 2008, and 1.08% at the end of 2007.

On a “number of months” basis, 219,100 mortgages were in arrears of more than three months at the end of 2008, up from 166,600 at the end of the third quarter of the year, and up from 127,500 at the end of 2007. However, the big reduction in mortgage rates experienced in 2008 was a significant influence on the rise in the number of arrears cases measured on a “number of months” basis - as the same given sum of arrears represents a higher number of months payments as interest rates fall (see note to editors).

The vast majority of people who face temporary difficulties successfully work with their lender to stay in their homes, and get their mortgage back on track over time. Where borrowers contact their lender early, maintain good communication and are committed to paying what they can and resolving their arrears, lenders work hard to help wherever the household’s future prospects look feasible.

CML director general Michael Coogan commented:

“Despite the upward pressure on mortgage arrears and repossessions arising from the problems in the economy and rising unemployment, both lenders and government are continuing to find more ways to help more people stay in their homes.

“But there seems to be a sharp rise in cases where borrowers are handing back their keys or abandoning their properties. We strongly urge borrowers to contact their lender and work with them before taking this step, as there may be other solutions. Borrowers are still liable for their debt, even if they leave the property, so working through their problems is much more likely to be in their best interests.”

Given this stark reminder of the state of the economy, smart borrowers are reviewing their insurance cover to ensure they are properly protected against losing their homes in the event that their income is lost or reduced through sickness, accident or unemployment.

Michael Cooke, of insurance specialist ‘The Money Helper‘, commented “Borrowers are suffering a double-whammy regarding unemployment insurance at present, with job losses by the thousand being announced on a weekly basis consumers are understandably rushing to buy unemployment cover, but so many insurers and products that were previously in this space have pulled out of the market in recent months that most advisers have been left without a solution to offer. Fortunately our status and relationships with insurers mean that we still have several products to offer clients needing their income insured against unemployment and also against incapacity both short and long-term.”

Consumers considering getting this vital insurance are warned to act quickly while there are still a few insurers offering this cover, as it may disappear altogether if the economy continues to decline further. To request a free quote from The Money Helper visit www.themoneyhelper.co.uk

Tweet This Post 

The latest 0.50% rate cut from the Bank of England is having little impact on the mortgage rates being offered, claims Moneyfacts.

It says many lenders stil appear reluctant to pass the latest cuts on to borrowers, resulting in the average rates barely moving.
Michelle Slade, analyst at Moneyfacts.co.uk, says: “Those already on or about to move on to their lender’s standard variable rate have been hardest hit of late, seeing just a third of the latest two cuts passed on.
“Many lenders seem to be actively trying to discourage borrowers using SVR as a product option, maintaining their SVR in line with average mortgage rates. Just one in four lenders have announced a cut in SVR this month and many of these passed on no cut last month.”
It also says new tracker mortgage rates may have seen the biggest cuts passed on over the last two months, but the margin taken by the lenders still continues to widen, today standing at three times base rate.
Slade adds: “Fixed rate mortgages are not faring much better with pricing more than double the cost of funding on the swap rate market.
“Lenders will only pass on cuts to a level they are happy to lend at, and for most this seems to have been reached.
“Anyone coming to the end of an existing mortgage deal in the coming months without substantial equity in their property will find it very hard to find a competitive new deal. Rates are still falling, but at a much slower level than borrowers would have hoped.
“Rates for new borrowers need to fall much further to motivate borrowers on a SVR to remortgage onto a new deal or even to trade up the property ladder.
“As time passes each base rate cut seems to have less of an impact for borrowers and continuing impact on savers. It begs the question; will the Monetary Policy Committee now say, enough is enough?”

With cutting edge sourcing software and daily updates of all newly added, changed or withdrawn mortgage deals across the whole mortgage market, The Money Helper remains a sure bet for ensuring your mortgage enquiry will yield the best available deal on any given day, click for a free quote or call on 0845 003 0065.

Tweet This Post 

Moody’s Investors Services has downgraded Lloyds TSB and Bank of Scotland as a result of HBOS’ high exposure to risk.

The ratings agency has downgraded the long-term bank deposit and senior debt ratings of Lloyds TSB Bank plc to Aa3 from Aaa and the senior debt rating of Lloyds Banking Group plc to A1 from Aa1.
The bank financial strength rating of Lloyds TSB was downgraded to C+ from B+, with a negative outlook.
Elisabeth Rudman, vice president and senior credit officer in Moody’s Financial Institutions Group, says: “The downgrades reflect the high level of troubled and higher risk exposures within HBOS.
“Moody’s considers these exposures will weaken the profitability and capital adequacy of the overall group, as well as the very significant operational challenge of integrating a larger and weaker bank into the group.”
Moody’s says the lower risk appetite of Lloyds TSB will stand HBOS in good stead but will not translate across to the group’s asset quality indicators for some time due to the size of the HBOS loan book.
The task of merging the two groups represents a substantial challenge for the management team particularly in the midst of a recession, the ratings agency claims.
Rudman adds: “At Lloyds TSB’s current bank financial strength rating of C+ we consider the tolerance for further impairment charges and losses to be around £16bn (beyond what the bank has already indicated is expected to be reported by Lloyds and HBOS in 2008).
“Losses above this level would increase the downward rating pressure on the bank financial strength rating of Lloyds TSB and Bank of Scotland.”

Tweet This Post