Mortgage lenders rush to cut rates

Within hours of the Bank’s announcement at noon, nine of the top ten lenders said they would pass the full quarter-point cut to their borrowers.  Only the stricken Northern Rock did not move its rates following the decision to bring down rates from 5.5% to 5.25%.  The ‘rush to cut’ follows criticism of banks and building societies for ripping off mortgage holders after the last rate reduction just before Christmas.  About 20% of lenders did not pass on the whole of the December decrease to hard-pressed borrowers.  The rate cut will help only the minority of borrowers, roughly one in five, who have a mortgage with a variable interest rate.  About 50% of homeowners have a fixed-rate loan which will not be affected.

£25bn sweetener revealed for Northern Rock

Today’s detailed plans to rescue Northern Rock involves converting the £25bn of Bank of England loans into bonds that would be sold off to investors. The bonds would be available for up to five years after which any remaining debt would be written-off.  Critics point out that the scale of the rescue package is highly risky. In the event of a catastrophic downturn in the housing market, with Northern Rock mortgage holders defaulting on their debts, the taxpayer would be left seriously out of pocket.  With this new deal, potential purchasers of Northern Rock will no longer be responsible for paying back the loan and will have until February 4 to make a renewed bid to the government.  In return for taxpayer support, the government will receive a percentage of the new owner’s profits.  If the government was unable to secure a sale, then nationalisation would become necessary.

Northern Rock kicked out of FTSE 100

In the UK, Northern Rock’s shares (Britain’s fifth largest mortgage bank) have been the worst hit by the credit crunch dropping from £12 early in the year to less the £1.  It will be relgated later this month to the bottom of FTSE 250 index for medium sized companies.  Just narrowly missing the index that tracks small sized companies.

Northern Rock entices savers and puts off borrowers

For the past two weeks, the bank has been offering loyalty bonuses to savers and increased rates to a range of savings accounts.  But on the other hand, it has withdrawn mortgages, loans, credit card, and increased borrowing rates to rediculous highs with huge arrangement fees.  Obvious signs that its trying to recoupe some of its loses after its savers decided to match away with their money in toe back in October.  It has since then borrowed more money from the Bank of England to the tune of £29bn.  The move has pushed some of its savings products up the best buy tables and deterred mortgage brokers with fixed rates starting from 6.79% on 90% LTV with arrangement fee of £1,995.  As a good loyal Northern Rock mortgage customer, I will have to match off too unless they sort this out.