Bank of England to bail out banks?

The Bank of England looks set to shore up British banks today by £50m of tax payers money. It will effectively guarantee bad mortgage debts that banks migh run up, although critics are saying that this will enable banks to profit from their good decisions, whilst taxpayers pick up the bills for the banks' mistakes.

But this assitance doesn't come with any guarantees that the banks will follow the Bank of England's lead and reduce interest rates.

There are concerns that too many cheap mortgage deals have been scrapped. The number of mortgage products available is down from 15,599 in the summer, to under 4,000 currently.

Liberal Democrat Treasury spokesman Vince Cable said: 'It is obviously necessary for urgent action to be taken to unblock the mortgage market and to break the crippling effects of the credit crunch.

'However, we cannot have a situation where the banks are able to privatise their profits and nationalise their losses. Since the mortgages from the banks are of inferior quality and higher risk than the Government bonds which they are replacing, the implication must be that taxpayers are shouldering the risks and losses of the banks. This cannot be right.

'We need urgent reassurances from the Government that the exchange is taking place on a discounted basis so that the banks and not taxpayers carry any losses.'

Mortgage Deals Crash

Research has revealed that the number of mortgage deals on offer to customers has dropped from 15,599 last July to 5,785, according to Moneyfacts.

Lenders are removing deals and changing conditions daily. Conditions can change to raise minimum deposits or pay higher rates. This will have a huge impact on the hosuing market, with only 1 in 3 houses expected to sell, according to Henry Pryor, property expert from website Primemove.com.

He said that many will find their dream home, but will not be able to raise a mortgage for it and that sellers must be realistic with prices and expect to raise 10% - 15% less than last summer.

This drop is not just in the troubled sub-prime market. The 'prime' market has also dropped from 3,803 deals to 2,540 in the same time period.

Deals that have done include the 100% and 125% mortgages. Only Abbey now offers a 100% mortgage to the main market, with other lenders offering 100% deals that require further securities, e.g. parental involvement.

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.

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.

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.