HSBC has announced it is raising some mortgage rates amid warnings to borrowers that the cost of new home loans is expected to go up in general.

The global economic turmoil has again made mortgage providers reluctant to lend to each other.

This has led to some lenders starting to push up interest rates and others putting their rates under review.

It comes after two months of falling mortgage costs, but brokers expect further volatility ahead.

‘Expect changes’

HSBC is increasing fixed-rate deals for new borrowers with a 10% deposit by 0.3 percentage points to 6.27%.

“It is almost impossible for consumers to try to second guess what is going on when the market does not know” David Hollingworth London and Country mortgage brokers

It continues to aim to attract “safer” borrowers by cutting costs on a fixed-rate deal for those offering a 25% deposit.

From 1500 BST on Friday 26 September, the bank’s internet arm First Direct will raise its two-year fixed rate deals by 0.2 percentage points.

The changes come as swap rates, which influence the cost of home loans, are rising sharply.

Libor, or the London Interbank Offered Rate, is the rate at which banks lend money to each other. The three-month rate has reached its highest level since December, rising well above 6%.

“I think the majority of lenders are looking at the pricing of their mortgages. We could see a lot of changes over the next few days,” said Aaron Strutt of mortgage brokers Chase De Vere.

All change?

The Yorkshire Building Society changed a number of deals earlier this week. From Friday, Abbey is cutting its two-year fixed-rate deals for people with a 15% deposit and adding to the number of three and five-year deals.

Mortgage interest rates had been dropping in recent weeks

Government-owned Northern Rock also told the industry that it was keeping its home loan costs under review. It warned that it could be changing its range at short notice.

Others are expected to follow suit, although Britannia is cutting its interest rates on new deals slightly.

David Hollingworth, of London and Country mortgage brokers, said this was likely to be an exception.

For the last two months, the cost of new mortgages dipped quite sharply, along with the costs to banks of borrowing wholesale funds on the financial markets.

Figures from the Bank of England show that the average two-year fixed-rate deal for those offering a 25% deposit fell from 6.6% at the end of June to 6.08% at the end of August.

But the latest turmoil has changed the picture for mortgages yet again.

“We have to look at the trend of falling rates coming to an end,” said Mr Hollingworth.

“It is almost impossible for consumers to try to second guess what is going on when the market does not know.”

News reported by The BBC

HSBC has blamed turmoil in the financial markets after withdrawing its $6bn (£3.3bn) offer to buy a majority stake in Korea Exchange Bank (KEB).

The stake is owned by Texas-based private equity firm Lone Star.

A year after agreeing the deal, HSBC said its plans to buy the stake were no longer in the best interests of its shareholders.

There has been speculation HSBC will instead use the money to buy one of the western banks hit by the credit crunch.

It has already been linked with both Washington Mutual and Royal Bank of Scotland.

The deal to buy KEB has been complicated by legal disputes surrounding Lone Star’s investment activities in South Korea.

Without the necessary approval from South Korean regulators, HSBC said it was free to withdraw its offer.

“In the light of developments around the world, not least changes in asset values in world markets, we do not believe it would be in the best interests of shareholders to continue to pursue this acquisition on the terms negotiated last year,” said HSBC Asia chief executive Sandy Flockhart.

News reported by The BBC

Bankers’ pay needs to be reformed so they are no longer handsomely rewarded for deals that turn bad, the chairman of HSBC has warned.

Chairman Stephen Green told the BBC that the banking industry was too focused on short-term profits.

He said that current pay schemes did not reflect long-term performance.

He indicated remuneration was one of the causes of the credit crunch as some staff were paid too much for deals that ended up costing their banks a fortune.

Banks worldwide have lost around $300bn (£170bn) from investments related to the sub-prime mortgage crisis.

Initially these bets on the sub-prime market, which lends to those with poor or patchy credit histories, were very profitable for banks as house prices rose and borrowers repaid their loans.

However, the market for mortgage-based securities turned sour last summer as defaults rose and the value of these investments plummeted. We should probably all breathe a sigh of relief at this acknowledgement that banks’ current woes… were self-inflicted

“There has been far too much focus on payments that are very short-term focused, people who pick up the tab for short-term profits, without having to bear the costs of long-term impairments,” Mr Green said.

He said transactions should be rewarded handsomely only when they had yielded sustainable, long-term profits.

Mr Green, whose banking group – the second biggest in the world – has its headquarters in London, added that compensation levels should be set by the market but that they should be consistent with the long-term interests of the market as a whole and the shareholders of a given institution.

BBC business editor Robert Peston, who interviewed Mr Green for BBC News series Leading Questions, said few bankers had stood up and admitted that remuneration in their industry was one of the causes of the credit crunch – and none had who are as influential as Mr Green.

But our correspondent added: “It’s all very well to recognise the need for reform – it’s quite another to actually get banks and bankers to sign up for what many of them will see as a pay cut.”

News reported by The BBC

The slump in the UK property market continued in August, with some estate agents selling fewer than one home per week in the past three months.

The Royal Institution of Chartered Surveyors (Rics) said sales were at their lowest level since its monthly survey started in 1978.

It said the fall in prices slowed, for the fourth month in a row, but they were still much lower than a year ago.

Rics said the continued shortage of mortgage funds was “stifling” buyers.

Mortgage famine

“A lack of mortgage liquidity is the key issue which is keeping the housing market from showing any real sign of recovery,” said Rics spokesperson Jeremy Leaf.

“While money is scarce, many will continue to be denied the next step on the property ladder.

“The Government’s stamp duty policy will not be enough kick start transactions,” he warned.

Meanwhile, the head of the Nationwide Building Society told the BBC that he expected house prices to fall by 25% from their peak last autumn.

Graham Beale also said he does not expect to see signs of recovery in the housing market until 2010.

The weakness in the housing market is being exacerbated by the sharp slowdown in the UK economy.

Unemployment is rising, growth is falling, and retail sales are weak – with the British Retail Consortium reporting that sales have been flat throughout the summer.

The past 12 months have seen an unprecedented collapse in home sales and prices since the property market, both here and in the US, was struck by the credit crunch in the financial markets.

Ripples from the crisis have spread throughout the world, with house prices falling sharply in many other European countries.

According to Rics, the average estate agent in the UK sold just 12.7 properties in the three months to the end of August.

That meant sales were running at levels 47% lower than in August last year.

And with the market normally quiet in August anyway, estate agents have seen interest even from predatory buyers “stagnate”.

The only glimmer of optimism in the Rics report was that the number of estate agents reporting a rise in new instructions was only slightly outnumbered by those reporting a fall.

However the number of new enquiries from potential new buyers fell again, and at a faster pace than in July, suggesting that the market may stagnate further in coming months.

“Falls in enquiries took place across all regions in England and Wales,” Rics said.

Cheaper mortgages?

The cost of borrowing has in fact been coming down in the past couple of months for some new borrowers, especially those who can afford to put down a deposit of at least 25%.

Banks and other lenders have found it cheaper than before to raise mortgage funds on the wholesale financial markets and have been passing this on to their most favoured customers.

Of the 12 largest mortgage lenders in the UK, 10 have cut the cost of their two or three-year fixed rate deals in the past two weeks.

The latest example came from HSBC, which yesterday cut the cost of all its fixed rate mortgages by between 0.46% and 0.72%.

News reported by The BBC

A £400m rights issue at Bradford & Bingley (B&B) has closed, with analysts expecting that some of the deal’s underwriters will end up with shares.

Shares in B&B were trading at 55.25p when the deadline for the cash call finished on Friday – just above the 55p offer price for existing investors.

The take-up is forecast to be modest – though higher than the 8% seen last month in a rights issue by HBOS.

B&B, a buy-to-let loans specialist, has been hit hard by the credit crunch.

It is not expected to reveal how many shareholders took up the offer to buy extra shares until Monday.

The rights issue was underwritten by banks including Citi and UBS, along with HSBC, Lloyds TSB, HBOS, Barclays, Abbey and the Royal Bank of Scotland.

WHAT IS A RIGHTS ISSUE?
Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

Rival cash calls

B&B’s rights issue has been restructured twice. The bank first announced an attempt to sell shares at 82p in May. Then, as trading took a turn for the worse, B&B announced it had decided to sell a 23% stake in the firm to Texas Pacific, but the private equity firm later backed out.

Earlier this year the Royal Bank of Scotland raised £12bn from its shareholders with a strong take-up in its rights issue.

Meanwhile Barclays has secured £4.5bn in new funding from a range of foreign investors.

Barclays announced last month that 19% of its new shares had been taken up by existing investors.

News reported by The BBC

Customers of collapsed wedding gift list operator Wrapit are unlikely to get any money back from the business, the administrators have said.

They said funds were unlikely to be available to customers without presents or Wrapit’s staff and its suppliers.

No buyer has been found for the business, which was founded by a former journalist in 2000 but ceased trading on 4 August, owing millions of pounds.

Out of 73 members of staff, 53 have now been made redundant.

Remaining presents

The remaining staff are staying on for a short period of time to deal with newlyweds who have presents ready for them in the warehouse. These couples have received letters telling them that they have presents to collect.

But this process has not been without its problems after the telephone service provider pulled the line to the warehouse on Monday. It has now been reconnected.

Some newlyweds held a protest last week

Staff will also take calls on the helpline for concerned couples without their presents.

But administrators Jane Moriarty and Myles Halley, of KPMG, said that the majority would now not receive any of their gifts.

About 2,000 have been waiting to see if they will receive any of their presents.

Administrators study the state of a business when they are called in. They oversee the sale of assets to pay back creditors.

The bank – HSBC in this case – has first claim on the money, with unsecured creditors, such as customers, staff and suppliers, at the back of the queue.

“At this stage we do not consider funds will be available for distribution to unsecured lenders,” said Mr Halley.

Claiming

That means most customers who paid for gifts by cheque or debit card will not receive any money back.

Customers who paid by credit card can claim from their card supplier, although this is only absolutely guaranteed if they spent more than £100. Those who spent less or used a Visa debit card will be considered for a refund on a case-by-case basis.

Wrapit vouchers cannot be used anymore and refunds for faulty goods can no longer be made.

Trading standards officers said customers should formally register as a creditor, by writing to the Wrapit administrator KPMG at 8 Salisbury Square, London, EC4Y 8BB.

They should outline details of the gift and where it was bought.

Wrapit was co-founded by former fashion journalist Pepita Diamand in 2000, but failed to make money. It owed HSBC £3.5m when it collapsed.

As well as its central warehouse in Acton, west London, the firm has two London showrooms and others in Aberdeen, Beaconsfield, Belfast, Birmingham, Bristol, Canterbury, Darlington, Glasgow, Harrogate, Manchester, Newbury, Newcastle and Norwich.

The administrators will release more information about Wrapit’s failure in eight weeks.

News reported by The BBC