Insights from the UK and beyond
It’s been an eventful week for the housing market — the latest in a turnaround in fortunes brought about by the slowdown in house price growth and the liquidity crisis sparked by the U.S. subprime woes. This side of the Atlantic, the fallout from the credit crunch has continued apace, and lenders’ PR machines have been working on overdrive.
A week ago, First Direct withdrew mortgages for new customers after its relatively cheap deals saw borrowers flock to its doors. Then, on Monday, Britain’s biggest mortgage lender Halifax raised its rates, hiked its minimum deposit to 5Β from 3 percent and introduced cheaper rates for those with 25 percent or more of their property value to put down. On Tuesday the first-time buyer became an endangered species: Abbey, Britain’s second largest home loan provider, stopped offering 100 percent mortgages, joining all its major rivals in requiring at least some deposit from borrowers — and pricing many trying to get a foothold on the ladder out of the market. The same day the Halifax house price index for March showed the largest fall since the recession of the early 1990s.
It comes as little surprise, then, to see the Nationwide reporting on Wednesday a four-year low in consumer morale during March. That tallies with an ongoing “flight to safety” that has seen people pull in the purse-strings and seek out safe havens. In the wake of the Northern Rock debacle, government-backed National Savings & Investments (NS&I) products have soared in popularity. NS&I offers savers a 100 percent guarantee, whereas the Financial Services Compensation Scheme protects cash on deposit with Financial Services Authority-regulated institutions only up to 35,000 pounds each.
NS&I, which pumps all the money it makes into the government (ironically, now the owner of Northern Rock), doubled its net financing target for 2007/08 to 5.6 billion pounds from an initial forecast of 2.8 billion pounds. The final figure will come in near to those 5.6 billion pounds, chief executive Jane Platt told me at a press dinner on Tuesday evening.
First Direct has pulled the shutters down on new mortgage business. Albeit a temporary move, it is yet more unsettling news for scores of homeowners coming to the end of cheap deals. Such a move is unprecedented, but perhaps comes as little surprise, given that the lender has been market-leading for quite some time. With pricing more or less 0.5 percent below that of its nearest competitor, the influx of new business that has created a huge backlog is understandable.
The mortgage market is moving at an alarming pace: First Direct’s decision to suspend new borrowing and push business to its parent company, HSBC, is yet another example of lenders taking action to manage volumes. Others have used other means of stemming inflows — increasing rates, withdrawing products and restricting their best rates to lower loan-to-value customers, as the fallout from the credit crunch continues.
Money matters are climbing the list of the talks parents feel they must have with their children: the subjects of debt and saving for the future are now deemed to be more important than educating our offspring on sexually transmitted diseases (STDs), racism or religion, research by Engage Mutual Assurance shows.
Debt is the most common financial topic of parental education (64 percent) followed by saving for the future (62 percent). That ranks them fifth and sixth in the top 10 topics for parental “chats”, ahead of racism (58 percent), illness and death (53 percent) and STDs (52 percent). The only “facts of life” considered more important than these money matters in children’s at-home education are drugs and alcohol (78 percent), personal hygiene (74 percent), talking to strangers (73 percent) and the “birds and the bees” (71 percent).