Look at the stock markets and you’d think that the financial crisis is pretty much at an end. But is it? In a sense, the answer is yes. We now know that come what may, Gordon Brown isn’t letting any UK banks go bust. So the crisis might be over for the banking system – or at the beginning of being over at least.
For the rest of us however the pain is set to continue. Don’t think, for example, that your mortgage bills are certain to fall. They are not. Just look at what the mortgage lenders are up to. HSBC has frozen its variable rate at 6.25%, despite the half-point cut in interest rates in order to “reflect the risk in the market.” Other lenders have raised rates: Nationwide has just bumped up the cost of some of its tracker mortgages by 0.3%. And you can’t even get a mortgage from Nationwide if you don’t have a 15% deposit.
Gordon Brown can’t actually make the bankers lend us money
And even our soon to be semi-nationalised banks, despite their promise to “maintain the availability and active marketing of competitively-priced mortgage lending” for the next three years, aren’t exactly tripping over each other in their enthusiasm to lend you money. Lloyds has not cut but increased its rates (by 0.34%) for those who have only a 10% deposit. And Northern Rock, a bank we’ve all owned for many months now, hasn’t done much better: instead of cutting its mortgage rates by the full 0.5% after last week’s base rate cut, it shaved a mere 0.15% off them.
No wonder a survey just out from the Royal Institute of Chartered Surveyors shows that this is one of the worst environments for the housing market ever. And no wonder that figures out from the Council of Mortgage Lenders show that mortgage borrowing levels in August were 63% below the levels of August last year. London’s Evening Standard suggests today that right now is the best chance buyers will get to “close a deal” on the cheap in London, before Gordon’s deal kicks in and prices start to rise again. Given the attitude of the mortgage lenders to risk at the moment, I wouldn’t bet on it. Gordon may be able to save the banking system but he can’t actually make the bankers lend us money if they don’t want to.
Our taxes are about to start going up
Possibly worse news for us are the facts that just as we all come to terms with the fact that the loose lending of last year is never coming back, that our house prices are going to keep falling, and that our economy is probably already in recession, our taxes are about to start going up. It isn’t something Gordon Brown has been mentioning much, but all the new commitments to the financial sector mean that public sector debt is about to soar. We have to pay the interest on that debt, and at some point we have to pay it back too.
And in the meantime, we are somehow going to have to make up the shortfall in tax revenues caused by the collapse in corporate (and in particular banking) profits and from the utter disappearance of stamp duty revenues. Think more debt, more interest and more repayments. Gordon Brown has been much praised for the “bold imagination” he has used in the delivery of his bank bail-out plan. He’ll be working the same bold imagination to squeeze every penny he can out of us from now on.
No need to worry about our bank deposits any more
Still, there is good news buried in all this. First up is the fact that we probably don’t have to worry about our bank deposits any more. Brown won’t explicitly guarantee them 100%, but its pretty clear he’s doing so implicitly. Note that he has guaranteed all the savings people who weren’t listening to Moneyweek’s many warnings about the likes of Icesave still had in Icelandic banks. And it’s hard to see him letting depositors lose money in the likes of RBS, assuming it does end up mainly tax payer owned.
That’s all good news given that the 100% safe places for your cash don’t look good in terms of interest. Northern Rock has shut access to its once wonderful esaver account (only a month ago you could get 7% on this) and National Savings & Investments has just cut the already pretty pathetic interest rates on its variable rate accounts by another 0.5%. Even more irritatingly, it has cut the pay out ratio on Premium Bonds from 3.4% to 2.85%. That means your chances of winning anything at all have fallen from one in 22,000 – which wasn’t great anyway – to one in 24,000. So knowing you are pretty safe putting your money in, say, First Direct’s eSaver at 4.75% is a relief (First Direct is owned by HSBC, one of the safest banks about).
The silver lining hidden in the crisis
But there’s another silver lining to the crisis too. It has revealed to us the dangers inherent in our refusal to confront our financial affairs. Take the case of Laura Craik, writing in the Evening Standard. “Though it pains me to admit it,” she says,” our prevailing attitude to money is not one of probity, not even profligacy, but pig ignorance. We don’t know the interest rate on our mortgage. We’ve yet to sit down and work out if what’s going out is more than what’s going in. This is not because we are stupid, but because we are afraid.”
She isn’t alone in this sentiment, but if the last few weeks have taught us anything, it is surely that ignoring your money because it scares you to think about it isn’t particularly clever. How many people left their money in Icesave simply because they couldn’t make themselves focus on where might be a better place for it? They won’t be doing that again. From now on, with a bit of luck, everyone will pay more attention to the products they invest in, the safety of the institutions behind those products and the return they get on them in the end. Something they should have been doing all along.
• This article is taken from Merryn Somerset Webb’s weekly Money Sense email. Sign up to Money Sense here.