Some of you may have read my post last week about the affect of the huge cut in the Bank of England base rate. As a result the three month Libor rate fell to 4.50% on Friday, which means it stands 1.81% below its rate on the 1st October.
At the start of last week the rate stood at 5.77%, so as a result of the 1.5% in base rates the Libor has gone down by 1.27%, giving lenders the chance to cut rates. Importantly despite the rate cut banks are reluctant to pass on the reductions in interest rates to others including other banks.
Banks attitude
The problem is now not so much about actual rates but banks whole attitude to lending against property. Two years ago they couldn't lend enough. Now with residential and commercial property values falling through the floor on the basis of very low transactional volume. The banks don't wont to touch property. The only loans they are prepared to make our where their capital is protected from further large price falls by advancing very low Loan To Values.
No cajoling by Government or Chancellors is going to change this in the short term. The only thing that will is when property prices stop falling. Ever heard of the chicken and the egg?!
It seems that all the rhetoric is about rate reduction and banks being put under pressure to reduce the rates so that people can afford mortgages. This is, of course, beneficial to massage the housing / mortgage market and make it appealing again however the larger underlying issue is the willingness of lenders to allow people to borrow, almost irrespective of price.
ReplyDeleteAs a broker I could sell the rates available as at today - in my opinion they aren't that bad when you consider rates around 10-15% not more than 15-16 years ago - what is getting increasingly difficult is getting the lending. I don't have a large adverse client base or clients with high LTVs and sometimes seem to be struggling to get deals through mainstream lenders with people who have minor or sometimes no damage to their credit profiles.
Most recently HBOS group, Lloyds TSB Group, RBS group and Barclays have all tightened there lending criteria or credit scoring to such an extent that even those with a good credit score are failing on automated solutions. When cases are thrown in front of underwriters they are looking at them from a very blinkered "black & white" view point. Only Abbey seems to offer a little bit of credible lending acumen by looking at the whole scenario.
As such this means that when a lender releases a new lower rate it creates good PR for them but offers very little to the public, who in the cases of some institutions above, are supplementing their ability to trade at all in the form of government hand outs created by taxing the public in the first place. I was previously a mortgage underwriter for a large lender, in the mid nineties not the boom time of the last 6 years, and we were taught "look to lend", only decline if there is a good reason to decline e.g. large unsatisfied CCJ's, recent defaults on multiple agreements, bankruptcy, IVA's etc.
As brokers I think more needs to be done to lobby lenders to get back to sensible but also realisitc lending. From the lenders I have spoken to most appear to be well under the 6% recognised acceptable arrears rate and yet they want to protect their book further by not taking on board debtors they previously welcomed with open arms (most of whom have maintained payments on credit over the past few years).
I understand the banks now need to consolidate and repair their balance sheets but how are they allowed to get away with this at the expense of the general public who support them through deposits and borrowing and now goverment lending?
Sorry to rant but I read most of the articles from both yourselves and other trade press and all I hear is "cut rates" when really what I believe we need to be saying is "cut people some slack" by not tarring us (general mortgage customers) with the incompetence of the Americans and their lending practices.
LIBOR RATES FALLING
ReplyDeleteThe three month sterling Libor rate was 4.15% on Monday 17th November.
This leaves it 1.15% above base, compared to the 1.06% it was above base before the 1.5% cut in rates.
Previously:
The three month sterling Libor rate was 4.42% on Monday 10th November, down from 4.50% on Friday 7th November..