Lunchtime news Monday 21 April 2023

The Bank of England this morning announced details of a £50 billion plan aimed at halting the spread of the credit crisis. Banks can swap UK and European mortgage debts for secure government bonds for a period of a year (with the potential to renew them for up to three years). However, the swap will only apply to mortgage debts on the banks’ books at the end of 2007. Mervyn King, governor of the Bank said that the scheme is intended to improve liquidity in the banking system and increase confidence in the financial markets.

Alistair Darling is also expected to insist that banks offer more support for homeowners in exchange for the government’s help in taking on some of the banks’ mortgage debts. ‘Mortgage holidays’ for those with good credit records, and allowing distressed homeowners to sell to their lender and stay on as tenants (sale and rent back) are two of the ideas to be discussed at Darling’s meeting with the banks and building societies tomorrow.

The Welsh Assembly has agreed to provide official help to people struggling with their mortgages, under the controversial sale and rent back schemes. The Assembly’s plan would allow registered social landlords and housing authorities to buy existing properties and rent them back to their previous owner for a ‘reasonable sum’. Until now social landlords had strict limits on the extent to which they could implement such schemes. The latest move would provide greater protection than currently available in the private sector.

The latest annual house price inflation figures for England and Wales from Rightmove.com showed that last month prices slowed to their lowest level since mid-2005, down 10 per cent. Prices in the North West fell by 1.4 per cent from a month earlier, and prices in London dropped 0.9 per cent.

And further economic woe comes from the Ernst & Young ITEM Club (EYIC) which is forecasting two years of sluggish growth unless the government takes ‘decisive action’. Describing the housing market as bleak and about to get a whole lot worse, EYIC estimate that growth will slow to 1.8 per cent this year and 1.5 per cent in 2009, while house prices will fall by 10 per cent and the number of people moving homes will drop by 10 per cent during the next two years.

The 2012 Olympic games is unlikely to benefit locals in east London, according to research by the New Economics Foundation. It says that the vast amount of money being poured into the games will go to consultants, developers and large companies, leaving local businesses unable to compete and local people priced out of the housing market due to ‘gentrification’.

And finally, millions of Britons who consider themselves middle class are finding out their claim to middle-class status is an illusion, as the credit squeeze means they can no longer carry on funding a middle-class lifestyle. According to moneysupermarket.com around 15 million people – a quarter of the population – have been taken out loans totalling £35 billion to try to maintain the illusion. Richard Mason, managing director of insurance and home services at moneysupermarket.com, said: “With the credit crunch taking hold and the housing market faltering, it’s worrying to see that so many people are spending and borrowing beyond their means to try and keep up with the lifestyles of others.” The study found that Cardiff had the highest number of aspirational class climbers, followed by Leicester and Newcastle.