ROOF Blog

Banks and building societies are under pressure to cut their mortgage rates, after the Libor rate fell to its lowest level in more than 20 years. Conversely the average two-year tracker rate mortgage increased from 3.73 per cent a month ago to 3.77 per cent this week, and lenders have also pushed up the price of fixed-rate mortgages to their highest level for at least 20 years. Critics have accused lenders of being ‘unfair’ to homeowners and threatening the recovery in the housing market. Libor is the rate at which lenders lend to one another.

Redrow and Barratt Developments accused the banks of downgrading valuations on new properties to restrict lending. Redrow said the practice of down valuation by surveyors representing mortgage lenders was ‘widespread’ and posed a ‘major obstacle’ in the recovery of the housing market. It blamed the gap in valuation for about two-thirds of its current cancellation rate of 20 per cent. A spokesperson for Barratt said the policy was creating a ‘two-scheme mortgage sector’ and added that house builders were asking for new builds to be valued ‘appropriately’.

Nationwide has launched a new 125 per cent mortgage, for those in negative equity and wanting to move house. The building society described the product as a ‘niche’ offer and said that the new mortgage would only be available to existing mortgage holders and would allow homeowners to ‘carry over’ their negative equity. Experts say it could help people stick in their homes who need to move, and expect other lenders will launch their own versions in the coming months.

Just a couple of weeks after credit agency Moody’s downgraded nine UK building societies, Fitch has done the same to five. Fitch cut the default ratings of Chelsea, Newcastle, Principality, West Bromwich and Yorkshire building societies because of ‘signs of strain’ on their mortgages as unemployment rises, and has placed Skipton on ‘negative watch’. A spokesperson from Fitch said its concerns were concentrated on higher-risk lending including buy-to-let and self-certification.

Chief executive for the National Debtline warns that millions of households struggling with debt could be unlikely to access independent advice because charities are so overwhelmed they can only answer half the calls received. Joanna Elson speaking at the Building Societies Association conference was trying to drum up support from building societies to help homeowners in difficulty as soon as possible, and estimated that around four million people will need debt advice this year.

Meanwhile, John Goodfellow, chair of the Building Societies Association, warned building societies were facing intense and unfair competition for deposits from the partly government-owned banks. He said the sector needed to put into place framework agreements such as that governing Northern Rock, which is unable to offer the top rates to savers on competition grounds.

The Bank of England is in talks with seven building societies hoping to renegotiate emergency funds made available during the credit crunch. While the building societies – including Chelsea, Yorkshire and Skipton – are not considered in danger of collapse, last week’s downgrading by credit agency Moody’s threatened to breach the terms of the government’s special liquidity scheme, forcing the building societies to either hand the money back or be changed more to use the funding, possibly further reducing the amount of money available for lending.

The Financial Services Authority (FSA) has been accused of complacency in its dealings with building societies. A former FSA worker told Lib-Dem spokesman Vince Cable that poorly qualified FSA officials, who had no background in the industry and didn’t understand its ‘community roots or limitation’, allowed building societies to expand into ‘risky areas’ and more societies could be at risk in the wake of the collapse of the Dunfermline building society. Mr Cable has asked the FSA chairman to investigate.

Nine of the biggest building societies have had their credit ratings downgraded over fears that losses from the downturn in the housing market may be ‘significantly higher’ than expected. Alliance & Leicester, Abbey National and Nationwide have seen cuts in their financial ratings by Moody’s, which expressed concern about the level of losses on self-certified and buy-to-let mortgages.

Meanwhile, Dunfermline building society, Scotland’s largest, is to be broken up and sold off. After incurring losses of £26 million last week, the Treasury announced that good loans and deposits are being bought by Nationwide and the Treasury will take in £1 billion of commercial property lending and mortgage debt. Alistair Darling had said the Dunfermline would have needed between £60 million and £100 million to keep it going because of its exposure to risky assets, and full nationalisation would not have provided ‘value for money’, but its chairman blamed the Treasury of having ‘deliberately scuppered’ any chance of the society remaining independent.