The return of competitive mortgage deals looks promising

Article source: Robert Thickett -

The return of competitive mortgage deals looks promising

Competition in the mortgage market at the moment is nothing to write home about. Mortgage lenders are striving to survive as opposed to getting as many customers as was the case before the onset of the financial crisis. The rescue plan for the mortgage market is being implemented day by day by the Government to ensure that the economy is salvaged before it is too late.

One of the moves to revive the market was the Bank of England’s reduction of its base rate by half a per cent. Another has been the pumping in of ₤20 billion of tax payers’ money towards the rescue of the Royal Bank of Scotland, which the bank has welcomed as a good tool with which it will use to inject competition back into the mortgage market.

The £12 billion into the Royal bank of Scotland has elevated UK taxpayers into being the majority share holder of the bank with a total share of 63%. The Royal Bank fo Scotland is aiming to raise a further £15 billion with a share price of 65.5 pence which is being guaranteed by the Government. The share offer is open to existing as well as new shareholders with the Government set to purchase whatever is remaining. At the same time the Government is set to acquire preference shares valued at £5 billion in order to increase the Royal Bank of Scotland’s tier 1 capital.

A further twist to the deal will see the bank’s chief Executive Officer, Sir Fred Goodwin step down and be replaced by Stephen Hestener a current non-executive director at the Royal Bank of Scotland and the present Chief Executive Officer of British Land. Sir Tom McKillop, the bank’s Chairman is also set to follow suit when he retires from his post at the next Annual General Meeting scheduled for Aril of 2009.

RBS is confident that mortgage lending can be awakened to the level they were in 2007 by offering competitively priced mortgages. It compounds its beliefs by saying that even in the height of the crisis, it has been able to raise its mortgage lending by 12%; RBS currently boasts the largest share of the mortgage market share with a stake of 17 percent.

The fact that RBS has had such a huge capital boost has not been reflected at all in the stock markets. The Bank’s share price has witnessed a fall unlike what was expected showing how volatile the market situation is. No one is putting so much faith in the markets just yet, with a lot of customers still speculating about whether the capital boost is enough to restore a balance in the current market situation.

The situation still remains uncertain because even with the Royal Bank of Scotland and the Lloyds TSB coming up with plans to bring competition back, the market might not be ready for it just yet as things are so much different now. First time buyers have in reality been shut out of the market. Most mortgage customer are hurrying to find ways to clear their mortgage debts while those who can, are seeking to find the best re-mortgage deals available. Regardless of how one looks at the situations, it will take some time for the market to recover and for competitively priced products to surface. Mortgage lenders are cautious of the kind of deals they engage in for the simple reason that they want to remain standing amidst the turmoil.