Mortgage Loan Interest Rates Could Rise
We have seen a considerable amount of upset in the financial markets over the course of the last couple of weeks, with the news that Lehman Brothers investment bank has filed for bankruptcy, AIG being rescued by the American Government and HBoS being bought out by Lloyds TSB, a large number of big companies, noted for providing funding for the mortgage and home loan markets, are struggling with their own finances, let alone being able to assist other banks with their loan funding problems.
“So how does this affect me?” I hear you ask, “How can some investment bank in America going bankrupt, possibly have an impact on my own personal situation?”
In fact, this is likely to affect many of us directly, as it is these institutions which provide a large amount of funding for loans on the wholesale lending market, which is where the majority of UK lenders obtain their funding from in order to be able to offer mortgages and personal loans to their customers.
According to several experts, this will have the effect of increasing the interest rates which banks charge, particularly in areas such as fixed rate loans and mortgages.
A spokesman for Moneysupermarket.com said “We’ve seen Lehman Brothers go under, AIG bailed out, now talk about Morgan Stanley. These are all kinds of players who have traditionally injected liquidity and you can’t help but feel that there will be even less money in the markets. And where money is short, prices go up.”
As a direct result of the recent problems, the London Inter Bank Offered Rate (LIBOR), the rate at which banks borrow money from each other, has already increased by one per cent and many high street lenders, who have recently been reducing their interest rates on loans, are expected to pass on these extra costs to customers.
Another industry expert commented, “Just when it looked like there was light at the end of the tunnel for the mortgage and loan markets, we are now heading back to a period of rising rates.”
