HBOS starts to feel the pinch

Article source: www.financialadvice.co.uk
Monday September 29, 2008

Halifax, the largest mortgage provider in the UK, and a member of the giant Halifax Bank of Scotland (HBOS) group, has cut its range of mortgage products by more than a half over the last night. Those prospective home buyers who are still wavering on whether to apply for a mortgage or not, should, as a result make up their mind without any further delay. As the range of mortgage products continues to decrease, so a potential home buyers choice will be limited; criteria on mortgage lending is also likely to tighten further.

A section of the well-known city figures have suggested that while the global money markets will benefit from the Troubled Assets Relief Programme (TARP), proposed by the Bush Administration (if it goes through), there could still be an upsurge in the cost of borrowing for financial institutions in the United Kingdom over the next two years.

In the event that the cost of borrowing for UK Banks, with reference to the London Inter Bank Offer Rate, continues to rise we could witness some of the following:

1. 1. A reduction in the number of mortgage products available.
2. 2. Banks and other mortgage lenders passing their increased cost of borrowing on to their customers.
3. 3. Higher required deposits for home buyers.
4. 4. More tentative and conservative borrowing criteria from the lenders.
5. 5. Falling house prices.
6. 6. Falling property sales.

These words of doom prophecy come from those in high ranking positions at Halifax and Halifax Bank of Scotland (HBOS). They are meant to dampen down the mounting hopes of a United States led rescue (this refers to the Troubled Assets Relief Programme) of the global financial sector. The truth is, that the financial rescue package, the Troubled Assets Relief Programme (TARP), would bring in billions of dollars back in to the system but more importantly it would create room for assurance in the worldwide economy to perk up. This, in reality is the vital point which almost everybody seems to be missing.

The liquidity problems that financial institutions are facing world wide is the major cause of the credit crunch. UK banks and other mortgage lenders are suffering from some of the following:

1. 1. Unwillingness from their counterpart to lend to them.
2. 2. Consequently they have to remove products from the market due to the lack of cash.
3. 3. As well as removing mortgage products from the market they will also be forced to increase their lending rates. This is partly to reduce the number of mortgage applications they receive but it is also directly linked to the unusually high 3 month London Inter Bank Offer Rate (The rate at which banks lend to each other).
4. 4. An unusually difference between the over night LIBOR and the 3 month LIBOR. This shows an unwillingness to lend, on the part of banks, for long periods of time.

Some city experts are suggesting that the only way that banks and other lenders can recover from this situation any quicker is to tighten their lending criteria and go against the capitalist nature that has made them so successful over the last 20 years.

About Halifax Bank of Scotland Plc

Halifax Bank of Scotland Plc (HBOS), comprising Halifax and the Bank of Scotland is one of the largest financial institutions in the UK. The Halifax Bank of Scotland (HBOS) Group provides retail, business and corporate banking services across the United Kingdom. Besides that, the Halifax Bank of Scotland (HBOS) Group is also a general insurance and investment service provider.