Tax payer bails out burden building societies
Sep 29th, 2008 by ctoop
News Week: 29th September
This week the government has nationalised Bradford and Bingley’s mortgage lending which stands at £41 billion in debt. The building society’s other assets of the savings accounts have been bought by the Santander group.
The debt that the Government has now taken on from both Northern Rock and Bradford and Bingley totals £140 billion, which is a burden on the tax payer.
Because of this move, share prices have fallen, which has led to a total of £15 billion being lost from five national high street banks. This is also bad news for the taxpayer; it means that the banks have less money to play with and so belts will again tighten in the financial world.
As Icelandic Glitnir has been nationalised, it has sparked fear for the British high street. This is because there are concerns about what effect the financial crisis will have on Baugur, a retail investor in Iceland.
Baugur has stakes in three main high street stores; House of Frasier, Woolworths and Debenhams. There are, therefore, fears that some of Baugur’s interests may have to be sold for its own security. If some of its assets are sold at quick sale prices, it could spell the end of a company.
Many banks are raising the cost of their mortgage rates, meaning that people will have to pay back even more money on their mortgages. Lloyds TSB have raised their mortgage rates by 0.26%. This makes it increasingly difficult for people to get onto the housing market or move, as people will not be able to afford the extra cost during such a financially unstable time.
Despite the higher cost of mortgages, the cost of housing itself is falling. For the 11th consecutive month there has been a fall in house prices, leading to a total average fall of £25k since October last year.
This, however, will not make it any easier to purchase property, as there are fewer mortgage offers around and it is also due to the high cost of mortgages these days. These issues have caused a slump in the building industry, as people can’t afford to buy houses anymore. The construction industry hasn’t seen such a slump in activity since 1983.
High street shops are also in trouble in the run up to Christmas; both M&S and John Lewis have seen a slump in their sales, which shows that consumers are being careful as to what they spend their money on. Despite this, Harrods has seen an increase in its sales, so much so, that its boss, Mohamed Al Fayed, has given himself a £600,000 salary increase.
By Charlotte Toop
