David Wighton: Business commentary
The markets were yesterday looking to Ben Bernanke, chairman of the Federal Reserve, to confirm the growing hope that the worst of the credit crunch may be over. He did not oblige.
The best he could come up with was that measures taken by central banks in recent weeks had stabilized the situation “somewhat”. He even came close to admitting that the US may already be in recession as problems in the financial markets “weighed on real economic activity”.
In the UK, that weight is becoming more apparent. Every day more than 3,800 people are coming off cheap fixed-rate mortgage deals and discovering the hard way that the credit crunch is not just an abstract phrase in the financial pages. From paying an easy 4 or 5 per cent, they face being stranded and paying the lender’s standard variable rate of 6 or 7 per cent unless they can find a new source of cheap debt.
The banks are having to navigate in a strange new world - a world where wholesale funding is neither plentiful nor cheap, a world where brownie points are earned not for winning mortgage customers but for turning them away, a world where savers have to be wooed and generously rewarded.
Some lenders are dealing with these conditions better than others. Pulling mortgage products abruptly or tightening lending criteria does not go down well with customers trying to negotiate house purchases. Mortgage brokers, who still dominate the industry, particularly hate the chopping and changing.
The withdrawal has become an unseemly scramble with banks leapfrogging each other to worsen terms so as to avoid being anywhere near the most competitive.
The banks risk being accused of profiteering by racking up their interest rates and of gouging vulnerable borrowers with nowhere else to turn. But interest rates have until recently been raised only for new customers. The cost of funding these new mortgages has rocketed, whether the bank relies on depositors, who can now command 6 per cent or more, or the wholesale markets, where Libor is still three-quarters of a percentage point above base rate.
Source:
http://business.timesonline.co.uk/tol/business/columnists/article3671254.ece
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