Investment: Banks face up to interest rate cut
Thursday 08 October 1998
While Barclays and HSBC shares have halved this year and most of the losses have come in the past 10 weeks, The Halifax, Alliance & Leicester, Northern Rock and Woolwich have come down only 15-25 per cent from the year's highs and in the past 10 weeks losses have been limited to less than 5 per cent.
But mortgage banks, more than most companies, depend on a buoyant housing market and that in turn relies heavily on low or falling interest rates and potential buyers feeling secure in their jobs.
A half per cent cut in base rates today would be followed by a matching cut in variable mortgage rates, but a drop in fixed mortgage rates is rather more problematical. They are linked to the cost of five-year money in the wholesale money markets and that has been falling over the past 18 months while short term rates have been rising. Sooner or later the traditional relationship will start to re-establish itself.
The housing market has already come off the boil, unemployment looks certain to start rising as economic growth declines, and estate agents are starting to sound gloomy as the latest survey from Birmingham Midshire shows.
Mortgage lending has not had time to go seriously off the rails in the last two years and bad debts should not be a serious problem for the mortgage lenders. But margins between the cost of money and lending rates tend to shrink when interest rates as a whole are moving down.
Brokers are still forecasting earnings of 47p this year, rising to 51p next year at Halifax, for example, but the shares look fully valued at 763.5p, up 11.5p on the day.
- 1 What happens to your body when you give up sugar?
- 2 Drugs Live cannabis trial: Hash is less harmful than any other drug, expert claims
- 3 Turkish Airlines flight TK 726 crash-lands on Nepal runway in dense fog
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 The majority of sex workers enjoy their job - why should we find that surprising?
Out-of-touch MPs ‘don’t get it’, says ex-Civil Service chief
George Clooney and Amal fail to get special treatment at New York restaurant
Cindy Crawford 'un-PhotoShopped' viral Marie Claire image was doctored, photographer claims
'A girl is more responsible for rape than a boy': The statement that shocked the world... except India
The 'sex selfie stick' lets you FaceTime the inside of a vagina
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
Boris Nemtsov shot dead: Outspoken Putin critic who had expressed fears for his life is killed near the Kremlin
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...