ALEX BRUMMER: Lenders have a duty of care

Britain’s ability to reach for a panic button at the first smell of consumer cordite knows no bounds.

No doubt for the homeowners who have a two-year fix expiring in the next few months and who have to pay 6 percent on their overvalued mortgages, this can feel like a ticking time bomb.

In addition, 4.2 million property owners who have experienced a £1,500 rise in redemption levels since the Bank of England belatedly changed its stance on interest rates in November 2021 will feel an income shock.

The pace of the rise in borrowing costs is a blow. But since the financial crisis, when interest rates fell to their lowest levels in history, homebuyers have never had it better.

The stricter affordability tests imposed in 2014, which examined every aspect from discretionary spending down to yoga classes, should have helped create leeway for homeowners, even though they were inexplicably relaxed in 2022.

The naysayers demand a rescue. The LibDems want a £3bn rescue fund. Michael Gove supports the idea of ​​longer term mortgage agreements up to 25 years, as in North America.

There is already a market for longer-term mortgages in the UK, but there are notorious mispricing.

Chancellor Jeremy Hunt is right to stand firm. No new government subsidies. The flexible UK model means borrowers have to make financial judgments, which can be destabilizing.

But in a world where housing costs consume a large portion of buyers’ (and tenants’) spending, mortgage rates are an important tool for limiting consumption or encouraging austerity.

Difficult as it may be for those facing a sharp rise in housing costs, we should not forget that most homeowners are far from being the most needy population in the country. Many are sitting on capital gains that are unlikely to be wiped out unless prices crash in a big way.

Less affluent homeowners with universal credit can access support. The US could look at a better system to smooth out the bumps.

The middlemen of the New Deal, Fannie Mae and Freddie Mac, are effectively trying to guarantee more stable borrowing rates.

They were caught horribly in the run-up to the great financial crisis. Adventures in derivatives, fat managers and weak oversight put them before, behind and at the center of the events that came close to the dethronement of capitalism.

In September 2008, the US government placed them in ‘conservatorship’ at a cost of US$187bn (£151bn) to the taxpayer in a disguised nationalisation.

Fannie and Freddie did nothing to make the proliferation of subprime mortgages safe for people who had no chance of paying them back.

Higher mortgage payments are stressful. But when there are amortization problems, predatory High Street banks have considerable firepower to deal with the problem by extending loan terms or offering mortgage interest deductions.

They could use the £44bn in additional revenue they would have accrued from rising interest margins.

Lenders need to skip stock buybacks and bonuses and make sure customers are taken care of during tough times.

Stress fracture

Activist fund Elliott Associates has a history of court battles. A long debate in Argentina over the country’s refusal to honor distressed government bonds ended in victory.

The London Metal Exchange is facing a hard rut in the Royal Courts of Justice over its sudden nickel contract suspension in the wake of the outbreak of Russia’s war on Ukraine, putting $7 billion in contracts at risk.

The handling of the nickel contract by the LME is not an afterthought. It is considered a serious market disruption by regulators, including the Bank of England.

It illustrates how financial transactions, outside the confines of bank regulation, can get out of hand.

The case is a test for Elliott, LME owners of the Hong Kong Stock Exchange and for metal trading in the city.

Exit

Car dealership Lookers, founded in 1908 at the birth of British motor racing, has had a checkered recent history.

Nodding-dog directors have again opted to surrender to an overseas buyer, Canada-based Alpha Auto, removing one of the last national UK car dealers from a London listing.

The share price premium of 42 percent over the recent trading price may look attractive.

But it vanishes in a cloud of exhaust when you weigh it against the 40 percent discount of FTSE shares to North American rivals.