UK Finance News

It appears that the proposed takeover of HBOS by rival bank Lloyds TSB is in danger of causing more problems than it sought to solve. Shares in HBOS fell in this mornings trading by 11.5% and Lloyds by 7.1% as experts realised that a merger would not solve the underlying problems of HBOS supposed under funding and a fall of 64% in mortgage lending compared to a year ago.

There are real fears that the merger would shift worries about HBOS funding to a larger bank.

There are also concerns being shown over the US Government’s bail out for it’s banks, with financial experts in the USA suggesting that the plan had not been thought through properly.

Homebuyers seeking to purchase property under the Government’s new shared equity initiative risk losing out if the property market picks up, warns the Law Society.

The Government’s revised equity share scheme allows vulnerable families who are no longer able to keep up with their mortgage repayments the chance to sell their home and rent it back, or to enter into a shared equity or shared ownership scheme on the property.

Paul Marsh, President of the Law Society, says:

“While any move by the government to tackle to troubled housing market is welcomed, we are concerned that if the market picks up those homeowners in the scheme will be losing out as they will have a smaller proportion of the property’s equity.

“This is a very short-term solution which runs the risk of leaving many homeowners on lower incomes in these equity share schemes trapped. Sharing the equity also means sharing the sale proceeds of any eventual disposal. If a homeowner has a 50 per cent share, they will only get 50 per cent of the value.”

The Law Society is concerned that those entering the scheme are not fully aware of all the dangers.

Paul Marsh says: “On the face of it, it looks appealing to those in need of help with their mortgage in the current downturn. However, it is essential that they get some legal advice as to the implications of the scheme and advice on other alternatives. 

“There are many solicitors out there who can advise on equity sharing, and consumers should get legal advice before taking up the new scheme. The scheme might seem a good idea at the time, but could prove costly in the long term.”

The Law Society has welcomed the governments suspension of stamp duty on property under £175,000, but like most of us considers the move too little too late.

David Blanchflower, an external member of the MPC who are charged by the government to fix interest rates in the UK, has warned that if the Bank Of England does not respond to the growing economic crisis instead of worrying about inflation, the UK will face unemployment of 2 million by Christmas.

Blanchflower stands by his claim that property prices will also fall by 30% and points out that a report from Nationwide this week shows that property has already dropped in value by 10%.

The MPC member has consistently called for a quarter percent cut in the interest rate but has been out voted on each occasion. He now warns that it will need a substantial cut to avoid his predictions of the economy coming true.

It will be interesting to see the response from other members of the MPC who up until now have been fixed on trying to curb inflation., although financial experts do not expect a cut in the base rate until at least November.

The pound traded against the dollar today at its lowest in two years at $1.8514.

Sterling has also suffered further against the Euro which traded at 79.35 pence.

“Sterling is being hit on all sides at the moment with a broad-based dollar rebound and the realisation that the UK economy is facing a very difficult period,” said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

The signs are that the dollar has seen the worst of it’s decline in the money market, but the news is not so good for the UK pound, at least in the short term.

Rising  unemployment, slowing wage growth, falling house prices, large trade and budget deficits, and slowing economic growth against the highest level of inflation in years have put the pound under immense pressure.

Financial experts are predicting that the Bank Of England will step in to reduce interest rates by the end of this year.

‘The Future of Financial Services’ is under discussion at a summit at the Dorchester Hotel on Tuesday 23rd September.

The increasing influence of having to treat customers “fairly” and how this affects the way finanacial institutions can operate combined with the diminishing influence of caveat emptor will be addressed.

The keynote speaker is John Tiner, the Former CEO of the Financial Services Authority. New York and Europe boss Chris Osborne of LECG, the global experts firm, Chairs the evening.

Delegates include senior figures of the UK’s financial institutions, banking and regulation partners for law firms.

LECG are a leading global experts firm. Founded in March 1988 in California, they have over 1,000 experts and professionals across 30 disciplines in 10 countries.