Mr Darling goes to Washington and comes up trumps.
Posted on October 20th 2008
Last week will go down as the week when the Government finally ‘got it’. What I
mean is that they have finally seen the size of the problem and the devastating
effect inaction has so far delivered. The moves made by the Government will hopefully
start to help us turn the corner and start a process that will help us avoid a prolonged
recessionary period.
The weekend spent in Washington also looks as though Alistair managed to convince
the rest of the World that his plan is the one that should be used as the template.
This should start to produce coordinated and proactive strategies to deal with the
global credit crunch. The first such move was clearly the interest rate reduction
in the US and Europe. I for one felt the first optimistic feelings about the economy
for a long time and I am sure many other mortgage borrowers and homeowners felt
the same.
The poor performance of banking stocks is quite predictable given all the strings
that come attached to the vast amounts of money the taxpayer is having to stump
up the bail out the banks. Dividends will be cut, executive pay will be curbed,
lending levels will be increased and more Government insight is enough to send even
the most experienced investors to run for the hills.
I was delighted when I heard the BofE had knocked 0.5% of the base rate, for one
I had been lobbying for this to happen for months and just as important my payments
are to come tumbling down. I am also very optimistic that there will be another
0.5% cut off base rate in the next six months. Fortunately I am on a BBR tracker,
but spare a thought for all those very unlucky people stuck on lenders SVRs. SVRs
tend to be around 2% over BBR and it looks like some lenders are actually going
to use the latest BBR cut to widen their margins. Most notably and unbelievably
the state owned entity called Northern Rock has only reduced its SVR by just 0.15%
leaving its SVR at 7.34% and effectively charging all their existing borrowers as
though they are subprime. I can’t see how the Government can let this happen as
they desperately want borrowers to feel better off in order to help kick start the
economy back into positive territory. If I were a NR borrower I would be up in arms
and would spend the next few weeks kicking up a right fuss.
For those borrowers stuck on fixed rates things don’t look as good; bank base is
going to tumble over the coming months and they will feel no benefit whatsoever.
I think if I were on a fixed rate I would be negotiating with my lender to switch
onto a BBR tracker, even if it cost me a few quid in the short term and even if
I had to go all the way up the line.
