Northern Rock Crisis Article Discussion

FP25_2

Martin,

Whilst i have read your articles for many months now, this is the first time I have posted anything. I am an ifa and feel that your site provides straight forward sensible advice to people. Well done.

On reading the Northern Rock Q&A's a particular answer caught my eye:

"Q: Will all mortgages go up in price?

A: Look at the facts. The amount banks have to pay to borrow has risen dramatically, as there’s a shortage of cash. Have you ever known a bank not try to snatch every penny off its customers if it’s paying more? This means it’s likely the mortgage rates offered will go up on the back of this.

Yet most people needn’t panic. If you are on an existing mortgage special offer deal (such as a 2 year discount or fixed rate) then your rate is already set and won’t change, full stop.

The people who need act are the estimated 250,000 whose fixed mortgage deals will end during the rest of this year. If that’s you, listen hard…. you need to get up off your backside and sort out a new cheap deal as soon as possible to avoid the rises. Even if your mortgage isn’t up for review until December, many companies will let you fix the rate now. To get the cheapest deal read the full Remortgage Guide."

The highlighted area needs slight amending as people with discountd rates are potentially at risk. The rate will be discounted from the lenders standard varaible rate (unless it is a discounted tracker). If the cost of funds continues to rise then the lenders may increase their standard variable rate which in turn will increase the amount paid under a discounted mortgage.

The saving grace should be that competition between lenders will drive them to keep margins tight. Some lenders such as Nationwide will allow you to switch into a fixed rate without penalty if you are on a tracker mortgage, but you would need to check the terms of your particular deal. Not many other lenders will offer the same, you would need to pay the penalty first!

Gazpablo

Thank goodness for the moneysavingexpert.com website - a sane and rational voice.

With the current Northern Rock crisis knowledgeable commentators are making noises about the Governor of the Bank of England - why didn't he act more quickly and why didn't the Bank of England reassure the public with a coherent and stabilising statement awhile back? the BoE knew for weeks before last Friday that Northern Rock was in trouble. No-one comes out this business with glory - the Bank of England (the backbone of the UK financial system), senior management at Northern Rock (they are OK, they awarded themselves recently large pay increases) and certainly not the government (who would trust the word of a politician?). A General Election will be needed to let people voice their decision - my guess is there will be increasing calls for this.

luv_my_brass

Although the site has been sluggish, I have managed to get through to the NR site several times over the weekend. I wouldn't be queueing if I didn't have an online account, although my jaw did hit the floor when I first heard the news Friday evening - I came straight onto the computer and accessed this site :-) I have tried to be guided by those who know better than me, and grateful to Martin for keeping us so well informed. I have moved the bulk of my savings out of NR, but it is overdue because I knew I could get a better rate elsewhere, it was just a matter of getting around to doing it. After reading Martin's article, I'm re-assured about leaving my isa's with NR until I get the full annual interest. But I am doubtful about tranferring them as isa's to another Company as my income is well under my tax allowance.

luv_my_brass

OFF TOPIC!

Whilst reading these posts and watching TV at the same time, just wanted to tell Martin - in case he missed it - the Marc Almond (on the Alan Titchmarsh Show) has just been giving this site a plug and wants the same in return!:money: :T

dannyboy66

Hi I Would like the question of the guarantee under the Financial Services Compesation scheme made clear.
First £2000 in full and 90% of the next £33000.
Is this per person or per account ? and what about joint accounts?
We have several fixed rate bonds which add up to more than £35000
HELP!!!!

dippy

dannyboy66 wrote: »

Hi I Would like the question of the guarantee under the Financial Services Compesation scheme made clear.
First £2000 in full and 90% of the next £33000.
Is this per person or per account ? and what about joint accounts?
We have several fixed rate bonds which add up to more than £35000
HELP!!!!

This information is available in other threads. The guarantee is per person. The bank/scheme assumes by default a 50/50 ownership for joint accounts.

[Deleted User]

Martin

You should make it very clear that savings of £35000 will suffer a loss if things get bad enough - it is not good enough to state that savings up to £35000 are protected without making it clear that the saver will lose around £3000.

Can you get a government minister or someone from the FSA to state that all savers will be guaranteed there money back. Each statement I have heard, there is always a 'get out' word inserted in the statement, which means that there is no absolute guaratee for anyone -not even savers with £2000 savings.

If the NR is so secure, as the FSA and government ministers state, surely it must be safe to buy NR shares, since other banks will be assured by the FSA & government ministers statements and want to buy NR.

Thanks for your web site.

gt94sss2

tightfisted wrote: »

Can you get a government minister or someone from the FSA to state that all savers will be guaranteed there money back. Each statement I have heard, there is always a 'get out' word inserted in the statement, which means that there is no absolute guaratee for anyone -not even savers with £2000 savings.

No government will ever do that, even if they mean it because they will lead to people also assuming they will be 'rescued' whatever banks do - and such a commitment would have to be extended to all banks - and some banks will start doing really stupid things..

If the NR is so secure, as the FSA and government ministers state, surely it must be safe to buy NR shares, since other banks will be assured by the FSA & government ministers statements and want to buy NR.

The depositors might be safe and Northern Rock a good/solvent business but that doesn't mean the share price will go up.. another bank may buy it for a price lower than its shares are currently trading at (or it could be higher) - thats a risk you take when investing in shares.

Regards
Sunil

crunchie1967

I have a mortgage with Northern Rock with a Drawdown facility. There is still over £60,000 that I can draw on and will need it for work I am doing to my house. Does anyone know if there is any danger that Northern Rock may refuse to release any of these funds if they get short of cash??

fruit_n_nut

Joscar wrote: »

You may be a non tax payer today, but surely if you gain interest on £200k at 6.25% this will be enough cash to make you a tax payer.

Good point, thanks Joscar.