Government bailout makes little difference for banks right now
Article source: Niall Firth, Paul Waugh and Nicholas Cecil - www.dailymail.co.uk
The British Government has rushed in, in their bid to salvage the sinking economy and has pumped in a substantial amount of taxpayers’ money towards increasing the liquidity in three of Britain’s major high street mortgage lending banks. This bail out includes £20 billion of financial aid towards the Royal Bank of Scotland (RBS), a £13 billion cash injection for the Halifax Bank of Scotland (HBOS) and £4 billion dedicated towards Lloyds TSB, the incumbent. The Iceland’s Landsbanki is also set to receive a loan of £100 billion from the Government.
This has prompted a lot of negative reactions from mortgage experts and city analysts. who have termed the Government’s move as undesirable, a sentiment echoed by the Council of Mortgage Lenders (CML).
British Prime Minister Gordon Brown said that the £37 billion set for the rescue of banking institutions in the United Kingdom was to aid the banks’ to pass on the benefits to small businesses and homeowners who are caught up in the confusion, uncertainty and hardship of the credit crunch. This was supposed to provide cheaper lending to enable borrowers to breathe a sigh of relief and ease their mortgage burden. Gordon Brown stressed the need to protect all solvent banks saying that none of them should be allowed to go down due to a lack of liquidity.
This rescue bid will see the Government become the major share holder of the Halifax Bank of Scotland (HBOS) with a share of 40 percent, and the majority shareholder in Royal Bank of Scotland (RBS) with 63% share.
With the boost to their liquidity, the banking institutions in question are being coaxed into inducing the mortgage market back to the lending levels we were experiencing in 2007 by the British Government. The Royal Bank of Scotland particularly boasted of an increase in its lending level by about 12% over the last nine months; it now has a 17 percent share of the mortgage market.
Another boost towards lifting up the economy has been the base rate cut of half a percent by the Bank of England. This prompted all the above rescued banks together with Barclays Bank’s mortgage arm, the Woolwich to reduce their Standard Variable Rates by the same percentage. This is a more than welcome move towards helping mortgage borrowers at this time. However, the situation with the mortgage market is a long way from off from the 2007 lending levels as a lot of mortgage lenders will tend to agree. It is so different now, for mortgage lender now more than ever it is all about survival and remaining buoyant as opposed to securing new investment business.
The fact that a much fewer mortgage products available on the market is a clear indication that will not be much healthy competition between the lenders for the foreseeable future. Mortgage customers are increasingly looking out for more competitive mortgage deals and are more worried about clearing their debts now then where they are going for their next holiday.
Economists are also warning that we may not have seen the last of the hard times just yet, as a result of the Governments’ cash injection into these banks it is widely expected that taxes could be forced to rise in order to counteract the cost of the bail out.