Multiple lenders raise their rates
Article source: www.debtmanagementtoday.co.uk
Banking institutions are fighting back to recoup some of the money that they have lost and are currently loosing. Many of the UK high street lenders are raising the interest rates on their two year fixed deals. Basically what we are facing is a chain reaction.
The problems to do with the interest rates are closely linked to problems in the global financial market. With the bank run on Northern Rock in January this year, the collapse of Lehman Brothers in the US and the nationalisation of Bradford and Bingley in the UK a lot of the banks have lost a lot of money which they had previously lent to these and other failing institutions. This has basically led to a liquidity problem in the banking system, which in real terms is a lack of cash. The old adage that Cash Flow is King really stands firm here. The problem follows that because the banks have no cash they can no do anything, they can not lend money because they don’t have any, they can not borrow money because they can not pay it back and if they can not do any of these they can not grow. If they can not grow, the institutional investors, analysts and shareholders in the city loose confidence and get worried and consequently their share price begins to fall.
All of these problems have consequently made the banks more wary of doing business with one another and slowly, well not so slowly actually, the Libor rate (London Inter Bank-Offer Rate), the rate at which banks lend money to each other goes up. The current three month average LIBOR rate is around 6.21 percent but it has over the last few days reached a day high of 7 percent.
The Libor rate directly effects the rate at which all the banks will be prepared to lend to their customers because if they are borrowing at 6.21 percent you can be assured of the fact that they will be lending at a higher rate in order to make a profit. Hence the current average of 6.28 percent on a two fixed rate deal.
BM Solutions, the subsidiary of HBOS, First Direct, the subsidiary of HSBC and HSBC have all increased their rates whilst others including USB Home Works and the Mortgage Works have announced plans to increase their rates as well.
A good example of what products are available on the market now is the two year fixed rate deal at 6.28 from the Halifax Bank. A high rate of interest to say the least and coupled with the fact that they are only prepared to lend up to 75% of the value of the property. Another sure fire sign that the market has dried up.
The signs are there and this quote sums it up: “We are entering the worst economic period for 60 years.” That sort of sentiment from any one is bad enough but coming from the British Chancellor Alistair Darling is a little more worrying.
The UK's high-street lenders have hiked repayment rates on their fixed rate mortgages, in moves set to pile debt pressure on struggling borrowers.
HSBC has hiked the rates on its two, three and five year fixes by 0.30 per cent, while the Woolwich has upped the cost of its fixed rate offerings by 0.25 per cent.
Meanwhile, the Yorkshire Building Society and HSBC subsidiary First Direct have announced increases of 0.50 per cent and 0.125 per cent respectively.
The increases follow a rise in the Libor (London Inter-bank Offer Rate), which measures the rate at which banks are prepared to lend money to one another, amid the ongoing turmoil in equities markets.
Louise Cuming, head of mortgages at moneysupermarket.com, said:
"Last week's unprecedented worldwide financial crisis led to an immediate jump in Libor as liquidity reduced and banks became increasingly reluctant to lend to each other."
"It has taken only a matter of days for the impact of this to feed through to new borrowers - with a double whammy of higher interest rates and tighter lending requirements."
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