Bradford & Bingley to be nationalised
THIS IS NO LONGER THE MOST UP-TO-DATE MONEYWISE ARTICLE ON THIS SUBJECT. PLEASE READ BRADFORD & BINGLEY DEAL: WHAT DOES IT MEAN FOR YOU? FOR THE LATEST NEWS AND VIEWS.
Troubled mortgage lender, Bradford & Bingley, is likely to join Northern Rock as a nationalised bank tomorrow morning.
The bank, which is the UK's biggest provider of buy-to-let mortgages, is expected to make an announcement to the London Stock Exchange before the market opens on Monday. Reports suggest the Treasury and the City watchdog, the Financial Services Authority (FSA), have been in talks about using taxpayers' money to prop up the bank after talks with potential buyers broke down.
Last week, rumour was rife that the FSA was brokering a deal that would see the Bradford & Bingley offered a rescue package. Names in the frame included the National Australia Bank, which owns ING Direct, and Santander, the Spanish owner of Abbey.
Although these talks have now reportedly broken down, the FSA is believed to only want to temporarily nationalise Bradford & Bingley, with its assets and branch base quickly sold on to bigger firms.
The temporary aspect of the deal, however, is unlikely to pacify critics; the head of the British Bankers' Association, Angela Knight, told BBC Five Live on Sunday that she was concerned about taxpayers' money being used to take on the liability of a bank. And the Conservative Party has made no secret of its disapproval about nationalising banks.
Bradford & Bingley has experienced a tough year, with its share price down 90% over the past 12 months. Its inability to find a larger bank to buy it has left it adrift in the banking crisis, with consumers increaingly concerned that it may go bust - taking their money with it.
The Treasury has repeatedly reassured savers that their money is safe with Bradford & Bingley.
The credit crunch in America and resultant banking crisis in the UK has hit all British banks, but few harder than Bradford & Bingley with its high exposure to 'risky' buy-to-let mortgages and reliance on the money markets for funding.
As a result its profits took nearly a 50% hit in the first six months of this year. And unlike rivals such as Alliance & Leicester, Bradford & Bingley has been unable to find a larger institution to offer it a lifeline.
The future of the mortgage market continues to look grim, with little confidence about the future. A report by a mortgage trade body, the Association of Mortgage Intermediaries (AMI), predicts that mortgage lending for the whole of 2008 will be around £55 billion – half the 2007 level – and is not likely to increase in 2009.
Chris Cummings, director general of the AMI, says: “The impact of the credit crunch is likely to be felt much longer and deeper than was expected 12 months ago."
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.