Stazjia’s Commentary

Bank of England

Almost everybody in the UK knows that the Government has given the banks a huge bail-out package to help the British economy in general. Two days ago the Bank of England cut the interest rate by 1.5% – a move that astonished everybody, including the experts.

After the Bank’s announcement, the big question was, would the banks pass this cut on to their customers?

The Chancellor of the Exchequer, Alastair Darling, had a meeting yesterday with the heads of the major high street banks and told them in no uncertain terms that they were expected to pass the cut on to borrowers.

Recent interest rate cuts have not been passed on to customers so not helping to the slide into recession. It is said the Chancellor pointed out to the bank chiefs that people of the UK are not happy having to pay out of taxes to help the banks but still see the banks keeping interest rates on loans and mortgages high. He is said to have told them that any future government help would not be forthcoming if the banks were not prepared to co-operate.

HSBC and Barclays Banks side by side in a street in Devizes, Wiltshire, as well as in defying the government.

Mortgages
This pep talk helped to some extent. Only Barclays and HSBC have not agreed to pass on the full interest rate cut to customers on standard variable mortgages (those whose repayments go up and down in line with bank interest rates but its at the bank’s discretion and may not reflect the increase or decrease).

Gordon Brown said, “Yesterday, we saw decisive action on interest rates from the Bank of England and the European Central Bank, and I welcome the fact that a number of British banks have now decided to pass on the interest rate cut to customers, to families and to businesses.”

The people who are happy are those on variable rate mortgages that literally track the rise and fall of the rate set by the Bank of England. Here’s the sting in the tail – most banks will no longer sell tracker mortgages as of yesterday. They have also stopped opening many new premium savings accounts

Behaviour of the Banks
For many years, people in this country have learned to hate banks. Their bank charges have been a scandal and many people have started legal proceedings against banks to recover excessive charges. Almost all of these have been settled out of court by the banks because they did not want a legal ruling (ie case law) on the subject in case it opened the flood gates to more people recovering charges.

In this current economic crisis they are withdrawing overdraft facilities from small businesses, calling in loans after maybe just one missed payment and foreclosing on mortgages much more quickly than they ever did in the past.

House for sale

This has led to the closure of small businesses, an increase in bankruptcies and repossessions of homes. The latter is particularly hard to understand.

The housing market is currently in a very bad state. Mortgages are hard to get, prices have fallen and very little property is being sold. Repossessed homes are just going to stand empty while families have to be helped by local councils.

Giving people more time, maybe repayment holidays and trying to avoid repossession would appear more sensible. If the banks were prepared to help people get back on their feet, there is a chance that many of them would be able to pay their mortgages in the future. If not, and repossession has been delayed, at least the housing market might recover somewhat so houses that have to be repossessed might sell more quickly and at a better price.

It seems that the banks are determined to put their own interests above those of the country in general. They don’t seem to understand that a long term recession will hit them too.

Some years ago, a farmer was very upset with his bank so he took his muck spreader to the local branch of his bank in Chippenham, Wiltshire, and sprayed the front of the bank with muck. It was reported on the TV news and most people said “Good for him, serve them right.” Perhaps that’s what the banks deserve now.