Weird and Wacky Week on Wall Street – What Does It Mean for Your Savings, Loans and Mortgage?
In another week of economic turmoil, the question the man in the street is asking is ‘How is this going to affect me? What will happen to my bank account or my building society account? Will my new mortgage payments go up? Can I still get a low rate homeowner loan? ’ Is the party really over as the Shadow Chancellor, George Osborne, claimed when he said ‘We built an economy on the engines of finance and housing and government spending, and the government never stopped to think what would happen if the engines stalled. The credit has dried up, the engines of the economy have stalled, the party is over’
US politicians, who have been in talks all weekend in an attempt to rescue America’s financial system and end the credit crunch, have announced a $700bn rescue package. In the UK, Bradford and Bingley have had their profitable assets bought by Spanish firm Santander, whilst the taxpayer is to shoulder the ailing mortgage section. Across the water in Europe the governments of the Netherlands, Belgium and Luxembourg have effectively nationalised Fortis, by agreeing to invest 11.2bn Euros in the struggling financial services group.
So what does all this mean for the man in the street? How does what has been described as an ‘economic meltdown’ affect him personally? Will he notice any differences? The answer is ‘Yes, indisputably’.
For those lucky enough to have savings, the future looks quite bright, providing their money is spread amongst different institutions. The first £35,000 with any financial institution is safe under the Financial Services Compensation Scheme, which would step in if the bank or building society went bust. Meanwhile, the financial crisis is sending savings account interest rates ever higher as banks compete to attract savers’ money.
‘They say every cloud has a silver lining, and out of the chaos of last week comes excellent news for savers,’ according to expert Kevin Mountford from the website moneysupermarket.com. He adds, ‘The market really is hotting up, and the latest offerings reflect the ongoing desire of institutions to fight hard for retail savings.’ Interest rates over 7% are now widely available and those with money in the bank are advised to shop around for the best savings account interest rates they can find.
For those looking for a new mortgage or hoping to re-mortgage their existing property, the prospects are less rosy. Earlier this week, several major lenders upped their rates, ending the post-July trend of falling costs of loans for homeowners. HSBC, First Direct and Woolwich have all said that the increased borrowing costs caused by the current financial turmoil would have to be passed onto their customers. More rises are expected from other institutions in the coming weeks and lending criteria are expected to be tightened too. Homeowners have been warned to expect the mortgage squeeze to continue for at least another two years.
And those people looking for unsecured loans are also expected to find rates rising as banks up the prices of lending money to each other. The head of lending at HSBC, Andy Mielczarek, says, ‘While Bank rate and Libor (the average rate at which banks lend to each other may well fall over the next six to nine months, the cost of capital for many banks may not reduce for up to two years, meaning their appetite for lending may well not increased as a result.’
Meanwhile, as everyone struggles to make ends meet, spare a thought for the Queen. She is to ask for a pay rise to cope with rising costs too. Her accountants are expected to ask that the Civil List be boosted when it comes up for review to meet a shortfall in costs. However, palace sources say she need not worry unduly as she has £26 million saved and add, ‘She’s not exactly down to her last penny!’