Bail outs could increase cost of borrowing

Grovelawn Financial News 14/11/2008

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Building societies start to buckle under strain

The Chairman of the Building Societies Association (BSA), John Goodfellow, has said that building societies may be forced to increase the cost of borrowing for their members in order to provide funding for the Icelandic bank bailout.

He went on to point out that he felt it would be very unfair to those societies who have not taken advantage of any government cash injection, to shoulder the total cost of the Financial Services Compensation Scheme. The FSCS guarantees up to £50,000 and is paying compensation to 240,000 UK savers at a cost of £1.4 billion which is funded as a loan through the Bank of England. The FSCS has also had to take out loans to cover depositors with Heritable Bank and Kaupthing Singer & Friedlander, the Icelandic banks and Bradford & Bingley.

Mr Goodfellow said “Building societies will be paying about 20 per cent of the interest due, plus 20 per cent of any capital shortfall, resulting in a considerable increase in their own expenses - an increase that can have an impact on building societies’ interest rate decisions in the light of last week’s Bank of England base rate reduction.”

← Tracker mortgages re appear in the market | News For November 2008 | Rates cut on current accounts →

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