The ongoing credit crunch continued to bite into the mortgage banking sector as two large UK banks announced a rise in their mortgage interest rates, this despite the Bank of England pumping extra liquidity into the money markets and continuing signs that UK Interest Rates have peaked.

Both the Abbey and Halifax have announced rises in their tracker mortgage interest rates of .2% for new borrowers. Other financial institutions are expected to follow suit with further rises expected later this year and into 2008.

The risks to the UK housing market of the US subprime mortgages sparked credit crunch were highlighted in my article of 22nd August (UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth), which warned of the widening gap between the banks base rate and money market interest rates that the banks use to borrow and lend money between themselves. This difference is increasingly being reflected in the market place as the financial institutions raise the interest rates on products such as mortgages and loans.

The earlier article Hedge Fund Subprime Credit Crunch to Impact Interest Rates (31st July 07), explains the dynamics of the credit crunch, the pressures of which are expected to continue well into 2008 with higher interest rates as the banks announce bad debt warnings over the coming months. This will result in higher interest rates and tighter lending criteria, regardless of cuts by the Bank of England's Base rate. The UK Housing market is expected to have peaked and a downward spiral to set in that will take house prices some 15% lower over the next 2 years.

As well as losers there are also winners. Savers are now enjoying the highest savings rates in 9 years as UK Banks Short on Cash Entice Savers With High Interest Rates (9th Sept 07). The banks are expected to continue to scramble for cash through the door as savings rates on some fixed rate bonds pass 7%.

The following recent articles explain the dynamics of the credit crunch and the continuing impact on the financial sectors

22 Aug 2007 - UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth
19 Aug 2007 - Credit Crunch Special
31 Jul 2007 - Hedge Fund Subprime Credit Crunch to Impact Interest Rates
01 May 2007 - UK Housing Market Heading for a Property Crash
20 Mar 2007 - The United States of Foreclosure - Subprime fiasco to trigger Stock Market Crash
22 Feb 2007 - US Housing Market Crash to result in the Second Great Depression

By Nadeem Walayat
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