The end of the beginning?

There are high hopes that the Chancellor’s intervention by way of a £50 billion mortgage bailout will help to re-stabilise financial markets and bring about the end of the beginning of the UK credit crunch.

Yesterday the Bank of England unveiled a £50 billion scheme designed to restore confidence into the ailing mortgage market.  The plan, announced by the Chancellor, Alistair Darling, will allow banks to swap mortgage-backed assets for government bonds that banks can use as collateral to raise money.  The government hopes that this will cut the cost of borrowing between banks, effectively lowering borrowing costs to consumers in the mortgage market. 

However, how effective this measure may prove to be is somewhat uncertain at this early stage, and has so far received an ‘underwhelming’ response from the City. 

Although the Chancellor hopes the move will ease lending conditions for borrowers, particularly first time buyers, the Council of Mortgage Lenders released a statement of response, stating that ‘the recent trend of mortgage products being removed and mortgage prices increasing for new customers will be affected more by how LIBOR [the rate at which banks lend to each other] responds to the announcement’; suggesting that the move in itself will be unhelpful unless banks begin to reveal the extent of their losses to one another to ease the uncertainty within the markets.  Unless this occurs, and the rate at which banks lend to each other does fall, the Council of Mortgage lenders believes that the improved liquidity brought by the cash injection is ‘unlikely to reverse the trend to higher mortgage costs we have seen in recent weeks’.

Please note: This website, and the articles and information within it are based on journalistic research. It does not and should not be construed to constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research.  For more please refer to our terms and conditions of use.