Eurozone crisis will wipeout UK mortgages, savings and family life

1 view
Skip to first unread message

Pastor Dale Morgan

unread,
Oct 26, 2011, 5:02:06 PM10/26/11
to Bible-Pro...@googlegroups.com
Perilous Times

Eurozone crisis will wipeout UK mortgages, savings and family life


As a result of the crisis, mortgage rates are rising and the hardest-hit are the young and the old – but some will benefit

    * Patrick Collinson
    * guardian.co.uk, Wednesday 26 October 2011 20.51 BST


Eurozone crisis will hit UK mortgages, savings and family life

The eurozone crisis is likely to hit the young and the old hardest in the property market. Photograph: Rui Vieira/PA

Tomorrow there won't be queues of distraught elderly savers outside collapsing banks – in Britain at least. There won't be emergency cuts in interest rates – there is nothing else to cut. But as the eurozone slow-motion car crash plays out in Brussels, we will all feel the longer-term impact on our mortgages, our savings and even the fabric of family life.

There are already some immediate consequences. Over the last month, Santander, ING Direct and Northern Rock have all pushed up the interest rate on "tracker" mortgage deals for new customers. Barclays has gone furthest, with its Woolwich subsidiary increasing the cost of its tracker deals by as much as 1.5%. "Go to" rates – the interest rate you'll be charged at the end of a deal period – have also started edging upwards.

The Bank of England base rate is rock-solid at 0.5%, and most economists think it will be pegged there to 2013, but behind the rise in tracker rates is the arguably more important Libor rate, which over the past month has been issuing ominous warning signals. Libor is the rate that reflects how happy banks are about lending to each other, and over the past three weeks Libor has begun marching upwards. The absolute level is nowhere near the crisis levels of 2007-08, but as Libor rises, so do the rates on new mortgage deals.

It's not all bad news for mortgage customers. While the cost of short-term money is rising, the cost of longer-term money is falling. As economists re-write their growth forecasts downwards, the prospect of a rise in base rate from the Bank of England or the European Central Bank has receded. What's more, the next round of quantitative easing is likely to push down medium-term money rates. That will translate into mortgage lenders cutting the price of five-year fixed rate mortgages to new lows. Last year they were typically around 5%, but have now crashed through 3.5%.

That's if you can get one. The tragedy of the price for the financial crisis is being paid by the young (locked out of the property market and facing the toughest jobs market in three decades) and the old (paying through derisory interest rates on their savings and rising heating and electricity costs).

Rents rose in every region of the UK in September 2011, pushing the average monthly bill to a record high of £718, and £1,029 in London, according to one of Britain's biggest letting agents last week. Young adults in work are in a catch 22 where their chances of building up the hefty deposit required to buy a home is made ever more difficult by galloping rent increases – itself a function of the numbers unable to put a foot on the property ladder. Ray Boulger of mortgage brokers John Charcol said that despite the reappearance of a few more 90% mortgages, lending to first time buyers will remain subdued this year and next as the eurozone crisis continues to inhibit the readiness of banks to lend to each other.

Personal savings balances though, are rising. In 2008, the household savings ratio hit a record low of just 1.7%, according to the Office of National Statistics. But despite the huge squeeze on spending since then from soaring inflation and weak or non-existent pay rises, savings levels have bounced back remarkably. This week the ONS said household savings rose to 7.4% of income in the second quarter, up from 5.9% in the first three months of this year. But while an inflow of retail savings balances may help starving banks, it prompts economists to worry about the "paradox of thrift". Prudence is good individually, but if we all suddenly start doing it, consumer spending nosedives and the economy tanks.

Compared with 2007-08, high street banks in Britain are, superficially at least, insulated from the crisis engulfing the euro. French banks such as Société Générale and BNP Paribas don't operate in the UK retail market, while Santander (domiciled in Spain) vigorously insists that its British operations are carefully ringfenced and financed virtually entirely from UK savings.

The winners are in the middle. Lending to landlords is booming, with reports recently of sealed bids as buy-to-let investors compete to snap up properties that will profit from the rental boom.

The emergence of "generation rent", and young adults remaining in their parents' home throughout their 20s, is likely to be an enduring legacy of the ongoing financial crisis.

So is greater inter-generational tension. New campaigning groups such as Priced Out warn of housing wealth becoming more generationally lopsided than it has been since the 1940s, with "older groups pressing home their advantage through investment buying." Social mobility will congeal even more as better-off parents unlock the door to home ownership by passing on equity, but leaving lower income groups in the cold. "If you have help from your family, there's lots of quite interesting deals coming out," says Boulger.

Some of the social changes the eurozone crisis is forcing on Mediterranean countries - especially the increase in the pension age in Italy and Greece – are already underway in Britain. How long the social fabric will hold together as the already well-off sidestep the crisis is probably a question for the Occupy protesters outside St Paul's and their indignado counterparts in Spain. The answer they won't want to hear is the "sack a slacker" hopes of eurosceptics keen to use the euro crisis to repatriate and degrade labour rights in the UK.

Silver linings? Maybe sterling will strengthen as the euro weakens, promising cheap holidays again. But it's notable how even as sentiment against the euro hits new lows, the pound remains stubbornly weak. The crisis may be centred on Brussels and Frankfurt, but few see Britain as a safe haven.

Reply all
Reply to author
Forward
0 new messages