Halifax, Britain's biggest mortgage lender, has inc-reased mortgage rates des-pite yesterday's £15bn liquidity injection by the Bank of England and the Prime Minister's assurance that the authorities will act to unfreeze funding markets.
Halifax said it had raised rates on two-year fixed and tracker mortgages by up to 50 basis points because of increased funding costs. It held three- and five-year fixed rates, which it said were among the most competitive in the market.
At a breakfast meeting in Downing Street, bank chiefs told the Prime Minister that speedy action was needed to increase liquidity in the stalled money markets. Mr Brown said the banks needed to restore confidence in the financial system by taking writedowns and raising capital where necessary.
But he acknowledged the authorities had a part to play in getting markets moving again. The meeting raised hopes of the banks and the authorities reaching an accommodation over capital and liquidity. The mortgage market has almost frozen in recent weeks as the funding squeeze has prompted banks to raise prices and cut lending, causing consternation in Government.
The Bank of England's liquidity auction attracted £15.15bn of bids, only just covering the money available. The injection of three-month money came on top of £10bn from December that was rolled over in March.
Simon Ward, chief economist at New Star Asset Management, said the low take-up compared with earlier auctions could indicate strain for some lenders. "Is this telling us that the banking system does not have more than £25bn of [eligible] paper, distributed in a way that banks who need funds don't have that kind of paper?" Mr Ward said.
Another explanation could be that if lenders expect the Bank to come up with longer-term funding measures they are holding on to as much eligible collateral as possible. Lenders are waiting for the central bank to announce new measures that could include accepting wider security for its loans and extending the loan period.
The key three-month Libor rate was little changed at 5.929 per cent, way over the 5 per cent base rate, despite the liquidity injection. With banks desperate for long-term funding, the £1.35bn auction of six-to-12-month funding was heavily oversubscribed. Mervyn King, the Governor of the Bank of England, has said he will come up with measures to boost liquidity and his plan could come before his next appearance at the House of Commons Treasury Committee this month.
Banks have failed to raise capital because of the perceived stigma of going to shareholders for cash. But after the US bank Wach-ovia's decision on Monday to slash its dividend and tap shareholders for $7bn (£3.6bn), UK banks and the authorities could acknowledge the credit crunch had gone into a new phase requiring extraordinary measures.
JPMorgan warned yesterday that 40,000 jobs could be lost in the City – double the amount forecast by the Centre of Economic and Business Research.
The Council of Mortgage Lenders is meeting the Work and Pensions minister, Stephen Timms, on Monday to urge greater state support for borrowers.Reuse content