Wednesday, May 21, 2008

HBOS and £500,000,000

You will probably have read in the papers that HBOS has floated off some £500million of mortgage debt.
This is good news as its the first easing proper we have seen in the mortgage market.
But before we all go wild, the average loan-to-value is 61% ( so undeniably above water even if prices fall by 38%) and the average price they are paying is 1.5% higher than they were paying before last October, when Base rate was .75% lower.
As a senior banker said to me the other day - " It's simple. We are paying 1.5-2% more for our money now than we were a year ago. The punter has to pay that. One of the ways we can squeeze up the price is by restricting mortgages for a bit, and then people don't mind paying the extra when they get desperate."
So there you have it. Economics triumphs again. Reduce the supply, up goes the price.
And actually, no one seems to be blaming the banks too much - apart from Brown and Darling who don't even understand that when you want to make a trade, you keep quiet until after you've done it.
I had a meeting with an HBOS executive today for one of the charities I'm involved in. He simply gave us the money. " After all," he said," We know you". So remember, even though the old fashioned banker/client relationship may be dead, they still believe in it.

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