More Interest Rate Cuts On Way??

'Growth is slowing quite sharply now, in part because of the rises in interest rates last year. That in itself might justify a progressive shift in policy from a restrictive to a more neutral stance,' reported Sir John Gieve, Deputy Governor of the Bank of England.

A neutral cost of borrowing is seen by many as 5%, which would mean a further 0.5% cut in interest rates. But he warned that inflation is still playing a worrying part in the current interest rates, due to the cost of food and fuel.

The End Of Cheap Loans???

Hector Sants, head of City regulator the Financial Services Authority, has predicted the cheap credit era may be over. He believes the crisis in the financial markets will force the banks to keep more loans on their own books, which could raise the cost of borrowing.

By passing debts to other companies who suffered the loss when debts went bad, banks may now how to keep more loans in house and to cover these bad debts themselves. This could end the ability to provide cheap loans and banks will be forced to provide loans that attract customers for longer terms. This would be the end of the so called 'rate tart', who moves mortgages every time the current special offer comes to an end.

New Housing Market Gloom

Persimmon has reported falling levels of interest in new homes, compared to this time last year. 12 months ago it had forward reservations of £1.3bn, now it is down 19% to £1.05bn.

Footfall through sites is also down 13% on the same period, with cancellations up 20% as potential buyers refuse to commit with banks and building societies tightening lending conditions.

Chairman John White complained of 'a very challenging year' and was cautious about the spring selling season. 'When confidence returns and sentiment improves we anticipate a return to a stronger market,' he said.

'In the meantime we remain cautious. Understandably, potential purchasers are currently taking longer to make decisions about the timing of their house purchase. There remains an underlying demand and desire for new homes but we have been experiencing a period of a "wait and see" approach.'

Nationwide Increases Deposits

Nationwide has increased the deposit homebuyers must produce for their best available rate from just 10% of the property price to 25%. With average house prices in London in excess of £300,000, this will mean a £75,000 deposit is required to secure the best possible rate.

High loan to value mortgages are steadily disappearing, with 125% mortgages being pulled last week. This goes hand in hand with the credit crunch and the number of mortgage defaulters stteadily rising. Banks are reacting to this by making it more difficult to get high levels of credit.

Borrowers unable to rise the extra 15% deposit will still be able to borrow from the Nationwide, but only by paying a further 0.2% - almost effectively removing this months rate cut.

Card Firms Slash Spending Limits

Customers of various credit cards are claiming that their spending has been curbed by the banks cutting their credit limit to £100 more than their current balance, without warning. These people are only discovering the change when they try to use their cards for purchases.

There was no warning of the impending reduction and the affected people have unblemished credit reports. Some people are reporting their credit limits dropping from thousands to hundreds, a drop of almost £10,000 in one reported case.

Most of those affected have been given no warning and believe themselves to have impecible credit histories, always paying off their cards on time. Banks are beleived to be reducing credit limits to protect themselves from customers who over spend and then are unable to meet the debts.

Northern Rock Nationalisation 1 Step Closer

The government won the vote last night to nationalise the Northern Rock. Although the Lords had tried to make amendments to the bill on grounds that it could put tax payers' money at risk. The Lords did want an independent audit of the bank's books and the dealings to be brought under the Freedom of Information laws as well as an Office of Fair trading review over concerns over giving the bank an unfair competitive advantage. But they had to settle for government guarantees after loosing votes on the first 2 amendments.

The bill is expected to get royal assent today.

Northern Rock Ends 125% Mortgages

Northern Rock has followed other lenders and yesterday withdrew it's 125% mortgages. It will no longer offer this mortgage to new customers as it concentrates it's lending on low-risk customers and attempts to shrink it's book.

Many of the better quality loans in it's books are owned by another company, Granite, and are not part of the Nationalisation process. This along with customers who can moving away, leaves the bank with a poorer quality mortgage book for nationalisation.

Analysts are also worried about customers across the board with 100%+ mortgages where the deals are coming to an end shortly. Many of these will not be able to find new offers and could end up struggling to meet repayments. Only Birmingham Midshires still offers a 125% mortgage, and this is expected to be withdrawn.

Stamp Duty Raises £31bn

Over the last 10 years stamp duty has accounted for £31.5bn, according to latest figures. £6.5bn of this was paid last year alone - an increase of 675% since Labour came to power.

Prior to the current government, stamp duty was paid at 1% on properties selling for £60,000 or more. Had this stamp duty threshold have increased in line with house price inflation, buyers paying under £190,000 would not be paying any stamp duty. But currently, buyers paying between £125,000 and £250,000 pay 1%; those paying up to £500,000 pay 3% and above that 4%.

This meant that last year 1.1m paid stamp duty, compared to 400,000 in 1997. A treasury spokesman did say that 5 out of 6 buyers pay either the 1% rate or none at all.

Could the Alliance & Leicester be next?

Analysts are concerned that the Alliance & Leicester could be the next major bank to follow in the Northern Rock crisis.

The A&L is expected to try to protect itself by reducing the value of mortgages on it's book. It has already dropped it's 125% mortgage and it may increase mortgage rates to force some borrowers to move elsewhere.

Analysts are particularly worried about the Alliance & Leicester because it relies on raising money from global money markets.

End Of 100% Mortgages?

Lenders Abbey and Alliance & Leicester have both removed their 125% mortgages. This leaves just Birmingham Midshires and the troubled Northern Rock with mortgages above the value of the property being bought. These mortgages are often used by people unable to meet the other costs of moving, such as stamp duty and legal fees.

Recently lenders have been removing the 100% mortgages on offer - before Christmas a third of lenders had these available, but that figure stands at around ten percent now.

This indicates a clear move of attempting to make borrowers more responsible for their borrowings and forcing buyers to be able to place a deposit on their new home.

Even after this month's rate cuts, there are fears that Northern Rock might have to increase it's lending rates and that this might cause other lenders to follow.

No Rate Cuts Even Though Prices Will Fall

Bank of England rate setter Kate Barker has warned that property prices could continue to fall, but next month might be too soon for a further interest rate cut.

More house price drop 'cannot be ruled out' after the 211% increase in house prices since 1997, said Barker in a speech in North Staffordshire.

'The risk I believe to be of most concern is around the interplay between the property market and the financial sector resulting from the credit turmoil.' said Baker

'There are clear signs of a marked weakening in both the commercial and residential property markets.' Barker went on: 'While the outlook for house prices is always highly uncertain, it is likely that prices will decline in the short term relative to earnings, and falls in nominal terms cannot be ruled out.'

Less Home Owners

A report by the Halifax has shown that the number of people owning the home in which they live has fallen to its lowest level since 1998 - standing at 69.8% in 2007 - down 0.8% from 70.6% in 2006.

More Unsold Houses

Property website Rightmove have released figures showing that on average, estate agents have 64 properties on their books for sale, against 54 each this time last year. At the same time, it is now taking an average of 98 days to sell a property, against 78 a year ago.

This might be caused by panic selling as home owners try to beat a price tumble, whilst others are selling as they are unable to keep up mortgage repayments.

It is also suspected that homeowners are choosing to hold out for higher selling prices rather than accept lower offers.

Interest Rates Not To Fall Fast

The Bank of England this week warned that it expects inflation to rise above 3% due to the rise in fuel, food and household energy bills. This is way above the 2% target and therefore makes drastic rate cuts unlikely.

Markets had expected rates to be cut to 4.75% by the end of the year - rates have been cut from 5.75% to 5.25% over the last 3 months. But the Bank are more concerned with soaring inflation rather than a possible recession.

Whilst this might be bad news for mortgage payers, net savers will be pleased that the rates aren't going to drop quickly.

House Prices Up 9.1%

Official figures show that the price of the average home rose by 9.1% in 2007 - around £20,000 TO £219,591.

This is below the figure of 9.7% that had been reached in November.

Savings Accounts Rates Drop

Savers should be wary about how much their savings accounts interest rates are dropping following Thursday's rate cut, after some rates have been cut much more than the 0.25% Bank Of England cut.

Saga dropped the interest rate on its one year fixed rate account by 0.85%, or 0.26% for the internet based account. At the same time the Nationwide has only passed on a cut of 0.17% or less to its savers.

If you shop arround some banks and building societies are bringing out new account offers that might be well worth your while.

Repossessions Hit High

Reposesssions have hit an 8 year high, leaping by more than 20% last year. Even this was still below what mortgage lenders had predicted.

There were 27,100 reposessions last year, but the real scale of the problem could be being hit by firms buying homes of struggling families then renting them back to the same family.

Interest Rates Cut .25%

The Bank of England cut interest rates by 0.25%, down to 5.25%, saying it was needed given the expected sharp rise in inflation over the next few months due to increased food and fuel costs.

Experts had called for a 0.5% cut, but the Bank of England held it's nerve with just a quarter of a percent drop to help homeowners. Within an hour of the announcement, 9 of the top 10 lenders had said they would pass on the cut to their customers. Only Northern Rock did not offer to cut rates for it's customers.

25 Year Fixed Rate Mortgages?

25 year fixed rate mortgages will become commonplace, Alistair Darling, the current chancellor, said.

Fixed rate mortgages are currently a popular choice, with the security of knowing what payments you are going to be making. But the vast majority are currently for 5 years or less (about 3150 of the 3289 listed in the Fixed Rate Mortgage Chart end in or before 2013).

Mr Darling is planning to encourage the launch of more fixed rate mortgage loans with terms of up to 25 years, to give extra security to hard pressed buyers.

'For many households, particularly those on low incomes, fixing the level of mortgage repayments for several years makes real sense,' the Chancellor added. 'It can also contribute to wider macroeconomic stability.'

He also wants the penalties for early redemption reduced so that homeowners are not punished as severely for paying off or moving their mortgage.

There are currently a handful of 25 and even a couple of 30 year fixed rate mortgages available, but they are few and far between.

House Price Inflation Below 5%

The Halifax has reported that in January house price inflation dropped to below 5%, leaving the average house price, according to its survey, at £197,244. The Halifax reported that the average home now costs £7,628 more than it did 12 months ago.

The slow down in the property market has driven this decline, leading to a drop in property prices over the last quarter. The annual house price inflation in August had stood at 11.4%

But experts are pleased that houseing prices have not plumeted and are predicting that this will limit the Bank Of England to a maximum of a 0.25% base rate cut later this week.

Halifax has said it expects housing prices to remain flat in 2008, even though the quarter to January showed a 1% drop.

Wondering what house prices are in your are? You can find house selling prices in your area for free, here.

Egg Accused

Egg has been accused by customers of freezing cards of people who do not pose a credit risk. It reported last week that it had told 160,000 that their spending power was to be curbed as they were high debt risk customers, but many have reported on internet forums and post boards that they have in fact always paid off balances in full.

Egg reject Dave from, Hertfordshire, wrote on the BBC website: 'My credit record is excellent and I actually took out an Egg loan three months ago.

'My Egg credit card has not been used for over six months and had £0 owing. Some customers are being ditched because in my view they are not making Egg any money.'

At the same time, customers have posted that their credit limits have been increased, even though they were in debt.

Egg rejected the claimns. A spokesman said 'We are not using this as an excuse to get rid of unprofitable customers.'

Bank To Cut Rates?

It is expected that the Bank Of England will cut interest rates by 0.25% when it meets later this week in an effort to prevent a recession.

Such a move could save around £32 per month off a typical mortgage of around £200,000, assuming that banks pass on the full rate cut immediately. But the Bank will be worried about the fine balancing act as such a rate drop might encourage people to save more, instead of paying off outstanding debts.

Insolvencies Drop

The number of new insolvencies dropped at the end of 2007. During the final quarter of 2007 'only' 25,000 people became insolvent, a fall of 16.4% against the same quarter in 2006, says the Insolvency Service.

This took the year's total to just under the previous year's record of 106,645 people and is the first year since 1996 that this total has decreased year on year.

But with a slowing economy, it is expected that unemployment may rise and with it personal insolvencies. Add to this the global credit crunch and it is expected that over 2008 the number of insolvencies will rise.

Credit Cards Harder To Come By

Egg started sending out letters to its customers last Thursday to tell them their cards where to be locked in 35 days, although they are expected to continue making repayments. The move is reported to be a response to the company being bought last year, rather than the global credit crisis.

HSBC has reported that its acceptance of credit card applications has reduced from around 2 in 3 to just under 1 in 2 applications, whilst Barclaycard has said that it is blocking some customers from withdrawing cash on their credit cards, as this can be a sign of financial distress.

A poll on the This Is Money website reported that about 20% of respondents have suffered a cut in their credit limit since August. Whilst the website MoneyExpert.com reported from its survey that the number of people missing at least one repayment has soared. In June around 4.1m card holders had missed a payment whereas by December that figure had increased by 1m.

Egg To Block Credit Cards

Egg is to block 160,000 credit card users from using their credit cards. These people will be receiving letters warning them that their cards are to stop working in 35 days.

It is believed to be the first time a credit card company has implemented such a drastic move to curb over spending. But other companies could follow suit over time. If many do copy and a lot of adults are affected, the ramifications on the high street could be hard hitting as people who rely on credit are unable to shop for luxuries.

Egg is believed to be targeting 7% of it's 2 million customers, because they pose a 'higher than acceptable risk profile'. This could include being over the credit limit or failing to pay the minimum balance.

Fixed Rate Hope

Borrowers with HSBC with fixed rate mortgages about to come to an end have been thrown a lifeline by their bank. The HSBC has offered those with deals coming to an end prior to the end of April new mortgage deals that will match their current mortgage rates for periods of 2, 3 or 5 years. It says it hopes to extend the offer beyond April.

This will come as a great relief to borrowers with the bank that were fearing a huge rise in mortgage repayments when their fixed rate offers end in the next couple of months.

Various arrangement fees will apply, but could cost less than the cost of moving to a fixed rate mortgage based on current mortgage interest rates.