LIBOR could indicate mortgage market recovery
Released
on: October 31, 2008, 10:12 am
Press Release Author: Melanie
Taylor
Industry:
Financial
Press
Release Summary: Financial solutions company Think Money have
said that the recent drops in the LIBOR could mark the beginning
of a recovery in the mortgage market, but warned that the successful
implementation of the Government’s bank bailout scheme will
be key to ensuring that rates drop further and activity within
the mortgage market can return to normal levels.
Press
Release Body: Responding to the news that LIBOR
fell on Wednesday following the European Central Bank
(ECB) and the Swiss National Bank’s
$254 billion (£145.7 billion) injection into the wholesale
funding markets, financial solutions company Think Money
(http://www.thinkmoney.com/)
commented that this could mark the start of a recovery in the
mortgages and loans market, so long as the conditions remain in
place for lenders to continue to do business.
Despite
last week’s half-point base rate drop, which was aimed in
part at encouraging lenders to offer lower interest rates on their
mortgages and other credit products, three-month sterling LIBOR
– the rate most banks base their mortgage rates on –
has been slow to respond.
LIBOR
reflects the willingness of financial institutions to lend money
to each other – and therefore the amount of cash flow in
the industry. As such, it affects the levels of loans, mortgages
and other forms of credit they are willing to offer to consumers.
In short, the higher the LIBOR is, the more expensive
it is to obtain the funds necessary for lending.
But
on Wednesday, LIBOR fell from 6.249% to 6.21%,
following around four weeks of continuous rises - not a huge drop,
but one that could indicate that banks may be becoming more inclined
to lend to each other, following the first cash injections from
the Government’s bailout scheme.
A
spokesperson for Think Money said: “This
is a small but encouraging sign that the mortgage market may be
on its way to improved levels of lending. What’s more, it’s
evidence that the first stage of the Government’s bailout
scheme may be working, which is good news for the economy in general.
“The
main obstacle to mortgage lending over the past year has been
lenders’ unwillingness to take risks. That’s the main
factor behind the short supply of mortgages on the market, and
the reason banks weren’t lending to each other, hence the
high LIBOR.
“The
aim of the bank bailout is to artificially increase cash flow
within the financial markets, which should then give lenders an
incentive to start doing more business with each other and with
consumers – and it would appear that it has worked, for
the time being at least.
“What
we will now be looking out for is whether the LIBOR will continue
to fall, and by how much. If it can drop to a figure somewhere
near the 4.5% base rate, we may begin to see healthy levels of
mortgage lending taking place once again. But the continued success
of the banking bailout scheme will be central to ensuring this
can occur.”
The
spokesperson added that although market conditions are currently
difficult, there are still plenty of mortgage deals available.
“We haven’t seen a complete freeze in mortgage lending
– just a tightening in lending criteria across the market.
Lenders still need to be competitive to do business, so the deals
are still very much there – it may just take longer to find
the right deal.
“Despite
the uncertainty in the housing market, now could be a good time
for first-time buyers, since house prices are relatively low,
and therefore mortgages are relatively cheap. If house prices
do begin to rise again soon, it could prove to be a very good
move financially.”
Useful
Resources for editors:
Homepage:
http://www.thinkmoney.com/
Mortgage page: http://www.thinkmoney.com/mortgage/
Remortgage page: http://www.thinkmoney.com/mortgage/remortgage.asp
Web
Site: http://www.thinkmoney.com/
Contact
Details: Pennington House,
Carolina Way,
South Langworthy Road,
Salford,
M50 2ZY
UK
0845 056 6480
2009
