18.11.08 by Andrew Montlake

Money Makes The World Go Around...

Last night I settled down to watch a very interesting programme called “The Ascent Of Money”. This is basically an entertaining historical examination of how money and more importantly lending and banking began. What is clear is that throughout the centuries financial crises and credit crunches have come and gone with surprising regularity and what is happening now is just another one. It also seems that the Italians are to blame for everything!

Reading the Standard last night one of the columnists referred to last year as “2007 BC – Before Crunch” – which I see catching on. The difference between the way the world is now and how the world was then seems incredible.

There are quite a few news items flowing about at the moment apart from the continuing “to borrow or not to borrow” arguments raging and the associated devaluation of the pound.

According to the Council Of Mortgage Lenders, (CML) the temporary increase in the stamp duty threshold saw 51% of homebuyers avoiding stamp duty in September. If some papers are to be believed that means 2.55 buyers benefitted.

There were further positive signs on money market rates as UK Libor rates fell again last week. The one month rate fell 0.41% to 3.671%, while the three month rate declined 0.32% to 4.176%. These rates have fallen by around 1.5% since the last cut in the bank rate. However, the three month rate remains more than 1% above the official rate, meaning the markets are still a long way from "normality".

The other story doing the rounds is that up to 40% of buy-to-let landlords could fall into negative equity if house prices keep on falling at their current rate, according to Standard & Poor's.

This was mostly due to those who took out Buy-To-Let mortgages in the last 2 years, which is not particularly surprising.

The CML has said that although repossessions are rising in this area, Buy-To-Lets are still performing better than mainstream products.

Again you have to look behind the sensational headlines that seem to suggest most mortgages are going down. Actually only 1.1% of BTL loans were three months or more in arrears in the second quarter of the year. By contrast, the arrears rate among mortgages of all types stood at 1.33% in the first half of 2008, with 0.16% taken into possession.

Whilst this is rising, it is important to put into context, and the recent rate cuts will have helped many to get through this.

« Back | Monty's Blog | Print article