Bradford & Bingley nationalisation: What does it mean to you?
Monday, 29 September 2008 04:31
Bradford & Bingley at the weekend was adjudged to no longer be able to continue as a bank. In the rushed deal the mortgage business was nationalised and the branches were sold to Abbey's owner Banco Santander.
So what does this latest banking collapse mean to you?
Savers
The message from the Treasury is it is business as usual for savers and those with current accounts.
Your bank now belongs to Santander and the staff now work for Abbey so all deposits are safe.
In the short-term all branches, websites and call centres will continue as before under the B&B brand, and you should notice no difference.
Loretta Minghella, chief executive of the Financial Services Compensation Scheme (FSCS), which guarantees savings in the event of a bank going bust, said savers have no need to worry.
"This initiative means that some 2.5 million people can rest assured that their money is safe and they will not lose it because of the problems at Bradford & Bingley. They can access their accounts in the normal way and it is business as usual for them."
In the long-term, the future of B&B now rests with the new owner. Eventually the B&B bowler hats may be hung up forever and branches could be rebranded along with account holders' cash cards and saving books.
Santander - which will shortly be owning Alliance & Leicester as well as Abbey and B&B - will have to take decisions on how it can support all branches. So it is fair to assume your local branch could close and merge with a neighbour.
One less firm in the market, however, will hit competition, meaning savings rates may fall.
Mortgage holders
Mortgage customers at B&B have to look no further than Northern Rock to see what will happen to their mortgages.
Your mortgage repayments will now go to the new owner of your mortgage debt: the government.
In the short-term, the government can't up interest rates on fixed rate deals already secured but when any fixed deal ends, the government will try to push you to remortgage elsewhere.
A Treasury spokesperson explained the government would have to stand by any mortgage contract you have.
"We are not going to tear up the rule book," he said.
All that will be offered after a fixed rate deal will be a high standard variable rate.
If you can't find another remortgage deal, then there will be little choice but to take this high payment.
B&B was largest buy-to-let lender in the UK, and with the firm leaving the mortgage market, the options to open for landlords will be restricted.
For amateur landlords it could the final nail in the coffin, and they may be faced with the option of just being better off by selling up. Professional landlords meanwhile, who can weather the storm may find there is less competition on the rental market. According to the National Landlords Association, rental income remains strong and is still viable as a long-term investment.
Shareholders
Shareholders will find themselves at the bottom of the pile when it comes to getting any cash back.
The government line is to protect the taxpayer and depositors first. Share holders will have to wait their turn.
Alistair Darling has admitted the million B&B shareholders will be forced to wait until the unwinding of the firm is complete before any cash left over can be theirs, besides compensation set by an independent valuer.
This is particularly hard on the small shareholders who received their stake when B&B demutualised in 2000. Any nest eggs they thought they had put aside has been losing value rapidly over the last year and any long-term investments could be lost.
The B&B share price a year ago was 325.50p, by Friday it was 20p.
Compensation plans for those hit by the nationalisation will be published "in due course" under the Banking (Special Provisions) Act 2008, the government stated.
Roger Lawson, of the UK Shareholders Association (UKSA), however explained the government would be looking to give the shareholders as low a compensation deal as possible.
"If the government winds up the company, with a mortgage book that could take 20 years. Any surplus would then be paid to shareholders. A valuer is not going to know if that is possible or not."
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