Mervyn King, governor of the Bank of England (BoE), said yesterday that the credit crunch had entered a ‘new and difficult phase’. He has indicated that action to buy or swap the mortgage-backed securities which have caused the credit squeeze may be needed, along with a reduction in interest rates. King’s remarks to a Commons Treasury committee came as the interbank cost of borrowing (LIBOR) rose again for the 12th successive day, to 6 per cent. The BoE’s base rate is expected to decrease to 5 per cent in April, rather than May, with a further cut to 4.5 per cent likely by the end of the year. King added that he thought the housing market would stay in the ‘doldrums’ for several years.
King’s comments come as Asda released figures showing that cost of living increases outpaced the rise in income last year. Families are now £7 a week worse off than a year ago, as household bills and increased taxes have taken their toll. Added to this for 1.4 million people will be an increase in mortgage costs as the period of fixed-rate mortgages comes to an end.
A number of homeowners are turning to expensive 10-year, fixed rate mortgages in an attempt to protect themselves from financial turmoil, according to the price comparison website, moneyexpert.com. Twelve per cent of all fixed-rate deals are now for a decade or longer, compared to 9 per cent a year ago, as borrowers look for greater financial security in knowing how much they will need to pay for the foreseeable future. The research comes at a time when more lenders are pulling out of shorter (two, three and five-year) deals, or ‘repricing’ them.
Gordon Brown came under fire today after being accused of ‘bandying around misleading statistics’ on the housing market in an attempt to minimise the perception of a faltering economy. Nick Clegg, Liberal Democrat leader attacked the prime minister in parliament yesterday for denying the UK was on the cusp of what could be a big housing crash, saying: ‘The prime minister was both complacent and disingenuous in his response to the very real concerns that the housing market is now facing an almost identical situation to that in the 1990s’. Mr Clegg quoted Ministry of Justice figures showing that more than 95,000 repossession orders were made last year, just a fraction below the 103,000 orders made in 1990 at the start of the last housing crash. Mr Brown replied that only 27,000 repossessions were made last year.
The government is to extend the Human Rights Act to protect up to 300,000 people who have been placed by local authorities in privately run residential and nursing homes. A £2 million venture will investigate the extent of abuse older people in care houses and NHS wards face, while promising to give people funding their own care, a right to appeal to an independent adjudicator if staff do not deal with complaints about the standard of service.
And finally, 44 per cent of first-time buyers would be willing to move abroad to get a foot on the property ladder, compared to last year’s figure of 25 per cent, according to website fairinvestment.co.uk. This is backed by further research by HSBC which reveals that Britain is the third most expensive country to live in, after France and Norway. The HSBC study estimated that a yearly British wage would last for more than two years in Peru, Argentina, Egypt or Costa Rica.