Could this week's surprising comeback by HBOS be a sign that fears of a 1930s-style Depression are slightly overcooked?
By Jeremy Gates
Shares in HBOS, Britain's biggest mortgage lender, soared 16% on a day when they were expected to plunge in the opposite direction.
HBOS, it must be said, owes its revival partly to City rumours that it could follow Alliance & Leicester into the arms of a Spanish suitor (BBVA, the country's second biggest bank) better placed to withstand current storms.
Who would have guessed in the 1980s, when the High Street banks were welcomed into the mortgage market, that we would be looking to Spanish banks to save us from management follies within a couple of decades?
Just ahead of the HBOS revival, Ray Boulger, a leading mortgage broker at John Charcol and a veteran of umpteen booms and slumps in housing, suggested that storms in the world financial systems might be starting to blow themselves out.
"I have been saying for the last month that we will look back on June/July 2008 and say that it was when mortgage rates peaked in this cycle," Boulger says.
"With Bank Rate likely to be falling again by early next year and additional mortgage funding coming into the market from private equity investment there are good grounds, contrary to the view of many economists, for thinking that house prices will bottom out in the first half of next year.
"There is still no rush to buy but once prices stabilise, let alone start to creep upwards again, buyers will no longer be in such a strong negotiating position and so there is a good argument for those who want to buy and are able to get finance to start actively checking out the market with a view to buying if they spot a bargain."
Private equity money entering the mortgage market is coming from two sources.
Firstly, Paragon - a specialist buy-to-let lender - has reportedly been targeted by various US groups, believed to include Blackstone and TPG Capital, which dropped its Bradford & Bingley rescue plan at the final moment.
Secondly, a new lender will enter the UK mortgage market in early 2009: Checkmate Mortgages, backed with Rothschild family money through RIT Capital Partners, another private equity firm.
"If you think about it, the time to be recruiting and building a computer system is when others are shedding staff and reducing IT investment," Checkmate executive chairman Stephen Knight says.
"And the time to be launching into new lending is when the liquidity freeze starts to thaw, about 18-20 months since it started in August 2007."
There are other signs of confidence returning: the estimated £12.5bn rescue plan approved for Fannie Mae and Freddie Mac, who hold more than 50% of all US mortgages, and claims from smaller US banks that they will not need to refinance.
Over here, Nationwide's move to cut some fixed rate and tracker mortgage deals by up to 0.46% is one of a range of rate cuts by the major banks that currently dominate the UK mortgage market.
The best deals are mostly directed at those seeking to borrow a maximum 80% of value (LTV) and in the case of Woolwich and Abbey, just 60%. That's the limit for the cheapest lifetime tracker from Woolwich at Bank Rate plus 0.69%.
However, both Bank of Ireland and Bristol & West have unveiled new deals in recent days, based on maximum LTV of 90%.
In the banking world, a trend of foreign takeovers will strengthen the notion that the bottom has been reached. The next key test will be the take-up rate for Bradford & Bingley's rights issue, which closes in mid-August.
However huge problems - house prices falling for at least the rest of this year, rising job losses, a massive overhang of personal and corporate debt - still lie ahead.
There are two key messages from this week.
The first is that events are unfolding so fast that decisions by small investors can be swiftly confounded by events: did the 92% of HBOS investors who boycotted the bank's £4bn cash call at 275p per share get it right, or wrong?
The second message is that if this week's belated revival of UK banking shares is sustained, then the people who matter may have convinced themselves that current financial systems can absorb the shocks that still lie ahead.
At best, the first steps may have been taken to restoring confidence shattered in the past year. If people can be convinced that the mortgage market won't get worse, confidence should begin to improve in the housing market.
INFORMATION: John Charcol (0800 358 5560 and www.charcol.co.uk)
:: BALANCING ON A FINANCIAL TIGHTROPE
If our economy does continue to weaken in 2008/9, millions of households are weakly placed for much harsher times that could be just around the corner.
According to Yorkshire BS, the majority of Britons live on a "financial tightrope". The average person's savings would last only 52 days if they were unable to work.
Based on a sample of 2,001 responses, Yorkshire reckons average monthly outgoings per household are £1,445 - against average accessible savings of £2,474. Some 36% of households with less than £500 in accessible savings would only be able to survive for 11 days without outside help.
The analysis lists groups most vulnerable to the savings gap as the divorced (able to last 35 days); employed part-timers (37); 35-44s (39) and 16-24s (41).
Least exposed are widowed people (120 days); the over 55s (97), the Welsh (91) and self-employed part-timers (64).
Yorkshire says 19% of respondents expect to rely on state benefits if they lose their job, but with average weekly outgoings of £333.56 against current state benefits of £75.40, many would face difficulties unless they are clued-up on the benefits system.
The obvious answer is insurance. But against what and at what price?
Yorkshire found 47% of its respondents have fixed life cover, 17% have insured against critical illness while only 10% have bought income protection.
However Simon Burgess at broker British Insurance thinks critical illness cover is a waste of time and says the basic defence in testing times is short-term income protection paying out for up to a year.
Burgess says a monthly premium of £28 can guarantee monthly income of £1,000 paid for one year. For £56 per month, you guarantee monthly income of £2,000.
"It means claimants would recoup the cost of three years of £28 premiums in their first month's payout," he says.
"People are gambling with their livelihoods and their homes by ignoring protection as cheap as that."
Burgess believes that in an economic downturn, it is more important to insure against loss of income than against accident and sickness.
It is also usually cheaper to buy the cover through specialist brokers like him.
INFORMATION: The Yorkshire BS report on "The Protection Gap: How the UK is Living on the Edge" can be downloaded on www.ybs.co.uk/protection; British Insurance (0870 240 3946 and www.britishinsurance.co.uk).
POUNDNOTES
:: While premiums have soared for motor and household insurance, the cost of life cover has halved in the last decade, says Michelle Slade at Moneyfacts.co.uk.
The fall represents a staggering saving of £3,018 in premiums over a 25-year term for men and £2,232 for women. Even smokers have benefited from cheaper cover, with the cost of premiums falling an average 2.2% for males and 1.6% for females over the past year.
The average monthly premium for non-smoking men is now £8.79, and £7.87 for women. Respective figures in July 1998 were £18.85 and £15.31.
:: The new savings bond from Coventry BS on minimum £1 deposits pays 6.80% gross AER until August 31, 2009, with a monthly income option of 6.55% (6.75% AER).
Enquiries: 0845 766 5522 and www.thecoventry.co.uk.
:: With further energy price rises looming, price comparison site uSwitch.com says nearly 200,000 households a month - about 45% of all supply switchers - could soon be signing up for fixed or capped price plans.
Tim Wolfenden at uSwitch says the average dual fuel energy bill is £1048 for a standard plan and £1045 for fixed or capped plans. However this small saving could potentially rocket to £422 if the threatened 40% price rises eventually kick in.
Enquiries: uSwitch.com (0800 093 0607 and www.uSwitch.com).
:: Fund manager Fidelity International admits that small shareholders might have seen share prices plunge in recent months, but they should be consoled by the thought that the growth in dividend payments is far more reliable than rises in share prices.
Fidelity research shows that annual increases in dividend payments ran into double percentage figures for almost half of the past 42 years, peaking at 24% in 1979.
The golden period for dividend growth was seven years between 1984 and 1991 when payouts rose by a minimum 12% per year.
Fidelity says that wherever possible, shareholders should look to reinvest their dividends in further shares to boost long-term returns.
:: HIGH FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
FirstSave www.firstsave.co.uk 7.10% (F) Fixed Rate Bond One Year £1,000 OM
Icesave www.icesave.co.uk 7.06% (F) One Year Bond One Year £1,000 OM
Heritable Bank 0845 607 1212 6.60% 60 Day Notice Issue 1 60 Days (B) £1,000 Yly
Whiteaway Laidlaw Bank Ltd 0161 833 5444 6.56% 60 Day Bonus 60 Days £1,000 Yly
Anglo Irish Bank 0845 455 2222 6.55% Seven Day Notice 2 Seven Days (B) £1 Yly
:: TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494 999 5.69% (FTB) for two years 90% £249 Yes
Norwich & Peterboro BS 0845 300 2522 5.70% for term 90% £999 Yes
First Direct 0845 610 0100 5.99% variable for term 90% £399
HSBC 0800 494 999 5.99% (FTB) variable for term 90% None Yes
Co-Op Bank 0800 633 5286 6.04% variable for term 75% £899
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T- Operated by Telephone
*W- Operated by Internet
*H- Operated by Internet/Telephone
*S- Available only to those aged 50 or over
*R- Available to those aged 60 and over.
Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice)
