Short-changed by banks

[EXC]

http://www.dailymail.co.uk/pages/liv...e_id=1770&ct=5

[Paule]

Re: Short-changed by banks

Short-changed: How banks are cashing in on the credit crunch by squeezing savers AND homeowners

By JAMES CONEY and SYLVIA MORRIS

Millions of homeowners and savers are being short-changed as banks fail to pass on the benefits of interest rate cuts.
A Daily Mail analysis of deals offered by lending giants shows they are seeking to cover losses, protect profits and retain bonuses by exploiting loyal customers.
Experts suggest the banks - under huge pressure from the global credit crunch - are using the current lending squeeze to make money by not raising savings rates and failing to cut mortgage rates.
A prime motive is their desperate attempt to recover around £9billion of losses from the U.S. sub-prime mortgage fiasco. With warnings that there could be another £11billion of losses to come, their money-making attempts look certain to continue.
The grim findings - outlined in today's Money Mail - came after another bad day for homeowners.
The Halifax said house prices fell by 2.5 per cent in March - the biggest drop since the dark days of 1992.
The International Monetary Fund said Britain could be the next housing market to crash after the U.S.
At the same time, it was revealed that the number of people taking out a loan fell by more than 30 per cent to just 49,200 in February.
Gordon Brown made an extraordinary intervention by suggesting the Bank of England should cut rates when it meets - despite its crucial independence from the Government.
And the Bank said it will inject an extra £5billion into the crippled money markets from next week.

The Mail's analysis reveals that since the Bank started cutting rates in December, neither homeowners nor savers are reaping the benefits even though the rate has fallen by
0.5 percentage points to 5.25 per cent.
In fact, rates on deals no longer bear any relation to decisions made by the Bank of England's Monetary Policy Committee.
One expert said the Bank had had become "increasingly irrelevant". Vicky Redwood, UK economist with the consultants Capital Economics, said: "The banks' margins had got narrower and narrower over the last couple of years.
"Now they are trying to rebuild their margins. They want to charge more to customers that they deem to be more of a risk.
"If the property market crashes they will be in for a tough time, so in the short term they see all these changes as a perfect opportunity to boost their profits a bit."
The apparent profiteering comes as banks continue to make vast sums each year. Despite the sub prime crisis that has spread from the U.S., British banks still made profits last year of around £40billion.
The Money Mail investigation exposes how the benchmark average standard variable mortgage rate rose by 0.05 percentage points between July 31, 2007, and February 29 - despite the Bank's base rate falling by 0.5 percentage points in the same period.
In addition, some savings rates have fallen by up to one whole percentage point, double the Bank's own rate cut.
In a further blow, new mortgage "tracker" rates have climbed by up to 1.4 percentage points and some fixed rates have jumped up to 0.54 percentage points.

Our analysis, based on official figures, examined savings and loans rates of all the banking giants and two major building societies between last July - before the onset of the credit crunch - and today.
Those examined were: Abbey, Alliance & Leicester, Barclays, Britannia Building Society, Halifax, HSBC, Lloyds TSB, Nationwide Building Society, Northern Rock, and Royal Bank of Scotland, which owns NatWest.
The biggest losers will be the homeowners who need to get a new mortgage deal this year because their current one is about to run out. About 2.75million are expected to remortgage this year, and many will be shocked by the huge hike in mortgage costs.
HSBC, however, has made an audacious offer to match the interest rate of any borrower coming off-fixed rate deals.


The offer will apply to both HSBC customers and those with mortgages elsewhere and effectively shields borrowers from the recent increases in the cost of a home loan.
It will mean their existing fixed rate deals - down to a cut off point of 4.54 per cent - will continue for another two years.

For the last few years, banks have been forced to slash their profits on their mortgage rates in a desperate attempt to attract new customers in the cut-throat industry.
Since the credit crunch this has changed, with banks desperate not to appear in 'Best Buy' tables of the most competitive deals because they do not want a flood of applications.
All major lenders are raising their mortgage rates, blaming it on a rise in the rates the banks pay to borrow cash from each other, which is then used to fund mortgage deals.
But the Mail's investigation shows the cost of borrowing is not as expensive as the banks are trying to make us believe. In fact, it is lower than at the end of July, which is before the credit crunch had even started.

[argentarius]

Re: Short-changed by banks

The same story's referenced here: Short-changed: How banks are cashing in on the credit crunch by squeezing savers AND - Legal Beagles and I've already pointed out one glaring error in the article's "findings" on that thread.

Their assessment of the impact of the credit crunch on the banks' funding costs (i.e. LIBOR) is also flawed.

Whilst LIBOR was as high last July as it is now, that was then expected by the banks to be a short-term blip and consequently wasn't passed on in mortgage pricing. Once the credit crunch hit, and as it's continued, the general consensus view is that funding costs will be higher for the duration and hence mortgages have been re-priced to reflect the new world we now appear to live in.

Mortgages are not re-priced every time LIBOR moves. What matters to lenders is the view of LIBOR they expect to prevail over the term of the short-term rate of a mortgage (or, for lifetime trackers, the long-term rate of a mortgage).

And, of course, there is a supply and demand issue which the article totally ignores. The banks simply don't (in the main) have the spare funds to lend because they can't borrow on the money markets at a reasonable cost. So the only logical way for them to restrict demand is to increase rates.