How many more banks will follow?

ginandtonic1988

Look like the Skipton have been hit hard by the credit crunch, wonder how many other bank will follow suit?
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7039183/Skipton-slaps-extra-2000-on-mortgage-bills.html

HAMISH_MCTAVISH

ginandtonic1988 wrote: »

Look like the Skipton have been hit hard by the credit crunch, wonder how many other bank will follow suit?

None, I'd imagine, as the Skipton is not a bank, it's a building society.

From the article.....

Under its mortgage terms, Skipton guaranteed its standard variable rate (SVR) – the floating rate to which all deals revert – would never be more than three percentage points above the Bank of England base rate, currently 0.5pc. The society has decided it can no longer honour the guarantee and will be increasing its SVR from 3.5pc to 4.95pc.

Mortgage Brokers said the change would add £157 to the monthly cost of a £130,000 interest-only mortgage, the national average. For customers on a repayment schedule, the cost only will rise by £105 a month.


The decision is a blow to the mutual movement, which prides itself on treating customers fairly, and raises questions about the viability of the business model as long as base rates remain historically low.

It rather seems like the business model is broken. As The Telegraph notes in another article this morning.

With the official Bank Rate at 0.5pc, their business model is broken.

They can't attract retail funds and wholesale markets are closed to them.

The only way they can boost capital, as required by regulators, is to boost and retain earnings, which makes them uncompetitive.



They need to be allowed to issue some form of new capital. Ultimately they need to cut costs, and that means merging, but at a much faster pace than present.

With the interest rate neutrality point for inflation at just 2.5% now, the low interest rate environment is here to stay. Building societies will adapt or die.

Generali

Their mistake is they're not too big to fail so they've been shafted to let the big boys survive.

HAMISH_MCTAVISH

Generali wrote: »

Their mistake is they're not too big to fail so they've been shafted to let the big boys survive.

Their mistake is they are reliant on a failed business model, better suited to the last 10 years than the next 10 years.

They have realised base rates will be low for years, and have hit the panic button.

Nothing more or less than that.

Also from the article......

David Cutter, chief executive, said: "UK savers are in hot demand as banks continue to reduce their reliance on the wholesale markets. This, coupled with rates payable by National Savings & Investments, has driven up the cost of funding to an unprecedented level.
"We hope [customers] will understand this is a necessary step that is in the best interests of our membership and the society itself".

Skipton never defined "exceptional circumstances" but has now clarified that the guarantee will only be reinstated when base rate rises above 2.7pc and the Bank's measure of the spread between UK "instant access savings" and base rate is 2.5pc. Insiders said the conditions could be in force for as long as four years.

Nationwide moved quickly to reassure its members on SVR deals with a guarantee of 2pc above base. "That's part of the mortgage deal and we will stick to it," a spokesman said. The society revealed in its accounts that the guarantee had cost it £450m.

Last year, it introduced an SVR without a guarantee for all new mortgage customers. Mr Boulger said no other society offers guarantees and that eight had increased their SVRs in the past six months alone in response to the higher cost of savings. Only Lloyds Banking Group has guarantees, through Intelligent Finance, Cheltenham & Gloucester, Lloyds TSB and Halifax. Being state-backed, Lloyds is thought unlikely to follow Skipton.

The big boys have no intention of following. And I rather suspect they know full well they could not get away with it if they did, as their guarantees formed part of the key facts document in their mortgages.

Generali

HAMISH_MCTAVISH wrote: »

Their mistake is they are reliant on a failed business model, better suited to the last 10 years than the next 10 years.

Nothing more or less than that.

Not really. If they're borrowing money at commercial rates and their competitors are borrowing at BoE special giveaway rates, they have been shafted by their competitors gaining from subsidy.

2010

Isn`t it about time that mortgage holder`s paid the true rate for their borrowing and stop relying on the miserly rates paid to savers to subsist them.

HAMISH_MCTAVISH

Generali wrote: »

Not really. If they're borrowing money at commercial rates and their competitors are borrowing at BoE special giveaway rates, they have been shafted by their competitors gaining from subsidy.

They're not though. And you know as well as I do, that the BoE does not lend funds for long term lending at special giveaway rates.

The building society model is broken, they rely on depositors accounts, and they can't compete with NS&I, let alone the banks. The wholesale markets are closed to all but the biggest and safest. Thats the real problem here.

mr_fishbulb

HAMISH_MCTAVISH wrote: »

With the interest rate neutrality point for inflation at just 2.5% now, the low interest rate environment is here to stay.

I wish you would stop spouting this like it is a god-given fact.

This is a quote from the article in your original post about it:

However, Morgan Stanley said the future neutral rate may be closer to 2.5pc or 3pc.

"Morgan Stanley said" = an opinion.
"may" = not certain.
"2.5pc or 3pc" = it's a guess at a range, not a calculated & undeniable figure.

Thrugelmir

Norwich & Peterborough have effected a similar change by increasing their existing tracker rates.

NatWest (RBS) are forcing through changes to their foundations mortgage product. Capping both the amount that borrowers can withdraw from their facility and pushing them onto a new higher rate of interest.

Little by little the market is changing.

HammerSmashedFace

I think the bottom line is IR's can never be any lower on average than they have been for the last 12 months or so. And considering nothing ever remains static in an economy, it is inevitable that rates will rise.

Hoodwinking the general public into borrowing large amounts of money for 25 years on the back of low rates that in no way can be sustained over anything like that period of time, whilst wages are inevitably going to see low rises or none at all, has been irresponible in the extreme, and at some point not to far into the future, this folly will be exposed.

Pobby

Double thanks to Hammers.