Banks avoid new customers
Article source: www.guardian.co.uk
The unfolding of the credit crunch that we have witnessed over the past few weeks would have definitely been enough to discourage even the most hardened impulse buyers. But even if there are consumers out there who want to spend heavy on their credit cards or even take out a huge mortgage which they may have difficulty paying back, they should think again!! For the first time in several years the banks are now showing a cold shoulder to those clients who want to borrow money. If they do decide to approve a loan or mortgage for their clients, the rates at which they are prepared to lend are very high indeed.
Banks and other mortgage lenders have withdrawn a large majority of their personal loans and mortgage products and have increased the lending rates on those that remain. The problem with the lack of liquidity in the financial market is clear to see.
This lack of cash has directly resulted in the mass withdrawal of products and has contributed to a rise in lending rates for many products, from mortgages to personal loans, credit cards and overdrafts. According to a comparison site, uSwitch.co.uk, eight major mortgage lenders have decided to increase their rates by up to 9 percent over the past four weeks. These higher interest rates will unfortunately mean that prospective home owners will have no option but to look for mortgage products which fit within their household budgets. If they can not find a suitable mortgage product available, they will most likely have to wait until the market recovers. All consumers will have to give some thought to avoiding their non-essential spending.
The number of mortgage products available in the market decreased dramatically from 30,000 in the month of September to a slightly over 6,300 this month; this situation rather than improving anytime soon looks more likely to worsen. During this period banks will try to clear their backlog of payment arrears and invigorate their vaults with fresh savings and deposits. Halifax has followed Northern Rock by pricing itself out of the mortgage market last week with another rate rise in just over a week.
Although the Bank of England will, most likely, reduce its borrowing rates this week, this does not give the borrowers any relief as the London Inter Bank Offer (the rate at which banks lend money to each other) is unusually high. The Libor rate is one which directly affects the lending rate at which mortgage products are advertised. If a bank is borrowing from another at a rate of 6 percent for example, it follow that they will most likely charge a higher lending rate on to their customers.
The Credit Card companies are become increasingly wary when processing applications from new customers and are even increasing rates for existing ones. Credit Cards spending limits are being scaled back and firms are monitoring spending and payment patterns on credit cards more closely in order to spot signs of distress. The so called rate tarts customers are those who kept on transferring their credit cards balances from one deal nearing completion to another zero interest rate deal for 6, 9 or 12 month periods, depending on what the particular offer was, are finding themselves locked into one card with no other Credit Card companies to turn to, a so called state of enforced monogamy.
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