£50 billion pounds sounds like a great deal of money, especially when it is being invested back into the banking system by the Government. Will you, the tax paying homeowner ever see it benefitting you?
The answer is hopefully, yes. After the financial hangover of the past six months, the Bank of England believes it time to administer a possible cure in the form of £50 billion of loans to the banks.
At last our government have realised that reducing interest rates has simply had no effect on mortgage interest rates. As rates were cut from last December onwards, taking one, two or even three paracetomol was just no cure for this hangover. Horribly drunk at the mortgage party and cheered by a never ending flow of money into the system, the lenders convinced themselves that risk no longer existed. Now sober, they don't trust the other party go-ers and the money has dried up.
In the years leading up to last summer, our banks have leant too much, too cheaply and with too few questions asked. Recently, I have taken a number of calls from homeowners with mortgage payments close to or in excess of their monthly earnings. Can their original mortgage applications honestly have reflected their ability to pay?
We have had one of the most competitive mortgage markets in the world. This is fuelled by the ability of banks to borrow money on the money markets at low interest rates. Following the ‘credit crunch’, their ability to borrow money to lend on to us has almost vanished. The higher the rates they pay, the higher the rates we pay.
But are the banks using this as an excuse to raise the rates on their own products? With so much smoke and mirrors confusing the customer, are banks using this confusion as an opportunity to increase their profits?
Interest rates for new customers and those switching to a new rate have gone through the roof in recent weeks. Strange how this should coincide with a meeting between the major banks and the government last week. It was reported that this meeting was planned for a 'long time' and was not a crisis meeting. There is a very strong suspicion that the banks have overpriced mortgages leading up to this meeting. The banks wanted to exert pressure on the Bank of England to make large scale loans available to help ease the funding shortage.
With new funding of £50 billion about to enter the system, the expectation is that there will be revisions to mortgage products to at last benefit the customer. Whatever route it takes to arrive back with you, the mortgage customer, it is hoped that this extra £50 billion on loan from the government will make mortgage rates keener for all and help to create a more stable mortgage and housing market over the coming months.
