stilover

Mortgage Firm Facing Cash Problems - Yahoo! News UK

There may be trouble ahead. I see a crash anytime soon.


Oh no it won't
Oh yes it will
Oh no it ...........

Devildog

We (as in the Insolvency and Recovery profession) have been anticipating a buy to let crash for about 15 months now.

Petem95

I don't think a property price crash is the issue any more - things could potentially get far more serious. Articles like this from Goldman Sachs are surely a bit worrying;

The great depression of 2008 – the mother of all depressions Functionpix Freelance News Pictures for sale Events Photographers Writers work

B&B and A&L look like they're in trouble - what happens when there's a run on a few banks? Government couldnt bail them all out - what would that do to confidence in the banking system?

Nimbus

I have a current account and mortgage with A&L. Why does it look like they are in trouble?

EddScott

That sounds familiar!

At least when it does happen all the doom mongers can say "I told you so"

Good luck

stilover

Better start doing what the halfwits with Northern Rock accounts did, and start queing now.

And yes i do have an account with Northern Rock........... still.

All monies in all banks are safe.

davegtt

Because he reads IFAs opinions on the internet and doesnt have an opinion of his own Hes been doing this for the last 2 years and fast becoming the new PSL of housing/finance threads

mrtheedge2u2

I do not have a mortgage

fast bloke

Really? Say Northern Rock go under, and are followed by Paragon, B&B and A&L... Barclays are also under pressure at the minute. The FSCS doesn't have the reserves to cover 18 billion of NR deposits, so where would they get the extra 200 billion to cover the rest.

stilover

The Government has guaranteed money people savings upto £35k. BOE is considering uping this to £50k

If the Bank/Banks went bust and people lost their money, it would plunge the UK into a mass recession. Something the Government will want to avoid at all costs.

fast bloke

Agreed that they have promised to 'guarantee' deposits up to 35k. What happens if they actually need to find 200 billion to uphold these guarantees? There isn't a big pot somewhere with 200 billion in it. If a couple of the big banks do go under our economy will be foobarred for the next 7-8 years anyway, and will be further foobarred if the govt tries to hand over the cash that it has 'guaranteed'

Norman D. Landing

Am I right in thinking that these banks who are supposedly in 'crisis' simply dont have enough fluid cash to continue lending it out as fast as they have?

It's not as if they've lost any of their own (or others) money (other than off their share prices). Right?

PS I work for a large British bank.

gpssti4

iTrader: (6)

Looks like it will be time for the £5.00 a litre petrol then.

Petem95

These banks essentially use similar business models to NR, so in simple terms they borrow money to lend, whereas the traditional bank will lend money which its savers have invested in it. The credit crisis means lending risk has increased massively, so nobody wants to lend money (ie banks not lending to banks). Obviously for the businesses who models work on borrowing lots of money to lend out, this is a 'spanner in the works' shall we say...

B&B said at the start of the NR crisis they were safe as they had enough liquid money to keep them going until the end of the year. Clearly the credit crisis has lasted longer than they expected, so be interesting to see what happens to them. They've just sold some assets to get some more liquid cash today as it happens....

As mentioned above as well, a guarantee on your savings is a bit false if this essentially cannot be honoured, which would almost certainly be the case if a few BSs/banks did go under.

fast bloke

Not really. Say you have a mortgage of 100k with Northern Rock at a BOE tracker rate of 5%. When you took this out they borrowed money from bank A at 4% and lent it to you. You pay them 5k a year and they pay bank A 4k a year. In order to get the money at 4%, they could only take the loan out over 6 months, so after 6 months the borrow 100k from bank B to pay back bank A. This all works well until LIBOR increases more than base rates. NR now have to pay off bank B, so borrow from bank C at 6% while they are still getting 5% from you. Bank C thinks that NR losing 1k a year on your loan doesn't look like a good business model, so they decline to lend them anything. Meanwhile, bank B wants its money back (probably to pay off bank D,E and F), so NR have to ask BoE for a loan. BoE agrees this at a punitive rate (6.75) and NR gets the 100k to pay off bank B to keep the circus going. However, everyone knows that NR doesn't look so good, so no-one will lend them the money to pay off BoE. BoE can leave the loans running long term, but NR still need to find the money to pay the difference between what you pay them and what they pay BoE. They can't raise money to lend and even if they could, it would have to be at a much higher rate than is currently competitive, so as it stands NR cannot continue to function in its current form forever. It will eventually run out of money.

To put it more simply - say you earn 900 quid a month and your interest only mortgage is 1000 a month. What will eventually happen?

alcazar

iTrader: (2)

So................what can/will happen to anyone with a mortgage with NR, for example, if they DO go under?

Alcazar

CharlesW

They will continue to repay their mortgage to whoever takes over NR's portfolio of mortgages.

mrtheedge2u2

But the problem then arise, that even though it will be very umpopular, the bank who bought your mortgage can increase your interest rate etc etc

davegtt

No, AFAIK the current deal/ fixed rate will stand.

mrtheedge2u2

That is not actually enforcable.... when Natwest bought a billion pounds worth of student loans... it was only their good will that stopped them increasing it.