What will the new ‘Superbank’ mean for Mortgage and Saver Rates?
by Ritchie Mehta (28 September 2008)
The consequences of the recent stock market shockwaves are likely to impact many borrowers for months to come. The near panic following the planned acquisition of HBOS has driven up the LIBOR rate, the rate at which banks lend to each other, to levels seen at the heart of the credit crunch, indicating that the UK banking sectors closed door approach to inter bank lending still stands firm. The knock on effect of rising LIBOR rates has a big impact on consumers and mortgage holders. In short if inter-bank lending rates increase, so will the rates banks lend to consumers.
The HBOS Llyods TSB deal has literally re-written the laws on corporate monopolies, as under normal circumstances the acquisition would have been taken in for full consideration. Should the deal proceed the new ‘superbank’ will be the largest in Britain with approximately 30% of the mortgage market and hold around one in every six savings accounts.
One consequence of this deal is the reduced number of competitors in the marketplace which could mean increased prices for consumers. Over the longer term, it is savers who may suffer the most from the acquisition. HBOS has typically offered customers industry leading interest rates, which their acquirer has previously been unable to compete with. In retrospect those relatively generous rates were perhaps a bid to drive up deposits to shore up the HBOS balance sheet. However, the new combined organisation will have less need to offer similar savings deals as the combined balance sheet will put them in a relatively strong position.
With a combined total of more than 70 savings products and 50 mortgage products it is likely that the number of product lines will be cut dramatically. This will inevitably impact upon existing customers and non-customers as the competitive landscape begins to change.