ALEX BRUMMER: Lenders have a duty of care


Britain’s capacity to reach for a panic button at the first smell of consumer cordite knows no bounds.

Doubtless for the homeowners who have a two-year fix that expires in the coming months and face paying 6 per cent for their repriced mortgages this may feel like a ticking time-bomb.

Moreover, 4.2m property owners who have experienced a £1,500 increase in repayment levels since the Bank of England belatedly changed its stand on interest rates in November 2021 will be feeling an income shock.

The speed of the rise in borrowing costs is a blow. But since the financial crisis, when interest rates sank to their lowest level in history, house buyers have never had it so good. 

The tougher affordability tests imposed in 2014, which explored every aspect of discretionary spending down to yoga classes, should have helped create wiggle room for residential owners, even though they were inexplicably eased in 2022.

Hikes: Some 4.2m property owners have experienced a £1,500 increase in repayment levels, since the Bank of England belatedly changed its stand on interest rates in November 2021

Hikes: Some 4.2m property owners have experienced a £1,500 increase in repayment levels, since the Bank of England belatedly changed its stand on interest rates in November 2021

The naysayers are out there demanding a rescue. The LibDems want a £3billion bailout fund. Michael Gove supports the idea of longer-term mortgage deals of up to 25 years, as in North America. 

A longer-term mortgages market already exist in the UK, but there has been notorious mispricing.

Chancellor Jeremy Hunt is rightly holding firm. No new government subsidies. The flexible British model does involve borrowers making a financial judgment, which can be destabilising.

But in a world where housing costs swallow a big chunk of spending for buyers (and renters), mortgage rates are an important tool for constraining consumption or encouraging spending in austerity.

As difficult as it maybe for those facing a steep jump in housing costs, we shouldn’t forget that most home owners are far from the neediest population in the country. Many sit on capital gains unlikely to be wiped out unless there is a wholesale crash in prices.

Less well-off homeowners on universal credit can access support. The US may look to have a better system to even out the bumps. 

The ‘New Deal’ intermediaries, Fannie Mae and Freddie Mac, seek to effectively guarantee more stable loan rates. 

They were caught out horribly in the run-up to the great financial crisis. Adventures in derivatives, fat-cat executives and feeble supervision put them front, back and centre of the events which came close to dethroning capitalism.

In September 2008, the US government placed them into ‘conservatorship’ at a cost of $187billion (£151billion) to the taxpayer in a disguised nationalisation. 

Fannie and Freddie did nothing to make the proliferation of sub-prime mortgages safe for people who had no chance of paying them back.

Higher mortgage payments are stressful. But if there are repayment problems, rapacious High Street banks have considerable firepower to tackle the problem by extending loan terms or offering mortgage rate holidays. 

They could use the £44billion of extra revenue they are thought to have amassed from surging interest rate margins.

Lenders should skip the share buybacks and bonuses and make sure customers are looked after through rocky times.

Stress fracture

Activist fund Elliott Associates has a history of battling in the courts. A long tangle in Argentina over the country’s refusal to honour distressed sovereign-backed bonds ended in victory. 

The London Metal Exchange faces a hard grind in the Royal Courts of Justice over its sudden suspension of the nickel contract in the aftermath of the outbreak of Russia’s war on Ukraine, placing $7billion of contracts in jeopardy.

The LME’s handling of the nickel contract is not a sideshow. It is regarded by regulators, including the Bank of England, as a serious market disruption. 

It illustrates how financial transactions, outside the perimeter of banking regulation, can spin out of control.

The case is a test for Elliott, LME-owners the Hong Kong Stock Exchange and for metal trading in the City.

Exit ramp

Founded in 1908 at the birth of British motoring, car dealer Lookers has a chequered recent history. 

Nodding-dog directors have once again chosen to surrender to an overseas buyer, Canada-based Alpha Auto, removing one of the last national UK car dealers from a London listing. 

The share price premium at 42 per cent to the recent trading price may look alluring.

But it vanishes in a cloud of exhaust fumes when measured against the 40 per cent discount of FTSE stocks to North American rivals.

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