What The Euro Crisis Means to Britain’s Lending

by Mark Johnston

An imminent rise in the Bank of England base rate is not expected, however the euro crisis could change things for mortgage borrowers as home owners could see re-mortgage rates soar if Greece if forced out of the euro zone.

It is warned that a continuation in the euro zone debt crisis could reduce the amount of money banks lend to home owners by eroding confidence in the financial market.

While some lenders draw mostly on their customers savings to fund mortgages, others have to borrow large amounts on the money market.

Since the euro crisis has emerged the pressure on lenders has come from the London Interbank Offered Rate (LIBOR), which is the short term interest rate at which bank will provide funds to each other, which has recently seen rates rise to their highest level since July 2009.

This increase indicates that banks are less confident about lending to each other. David Hollingworth, from mortgage brokers London and Country believes “we could be seeing a significant reversal in rates. Over the summer mortgage lenders were competing harder with each other, now that is changing”.

Many experts believe that now there is a good argument for borrowers to consider lifetime tracker or 5 year fixed deals because if the market turns nasty the lenders will start to cut back on high loan to value mortgages.

Ray Boulger of mortgage broker John Charcol stated that he would “advise those people who are thinking of re-mortgaging to definitely do it sooner rather than later.

Fixed rate deals are at record lows with 5 year fixes now below 4%, however these deals may not be around much longer.

Some lenders, including Woolwich, Halifax, Chelsea building society and Santander have recently pushed up their tracker rates for new borrowers. The Halifax raised its 2 year tracker to 3.34%, while Woolwich increased the rate its trackers revert to after 2 years by 0.4% and Santander pushed up its Abbey branded lifetime tracker to 3.09%.

The concern is that as the euro crisis gets worse, the supply of mortgages in the UK will start to shrink again, which could have a serious effect on the housing market. It does not mean however that people looking for a mortgage will have to pay thousands of pounds more.

The price for the financial crisis it seems is being paid by the young how are locked out of the property market and facing the toughest jobs market in 3 decades and also by the old who are paying derisory interest rates on their savings and who face rising heating and electricity costs.

What happens next depends on how fast the euro crisis develops. There will not be emergency cuts in interest rates, as there is nothing else to cut. As the slow motion ‘car crash’ plays out in Brussels, we will all feel the longer term impact on our mortgages, savings and even the fabric of family life.

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