April 9, 2008 | posted by Michael Baxter in Banking |

When the story of this period of economic turbulence is written, one assumes much will be written about the way certain banks, and building societies which talked the property market up,  insisted the underlying fundamentals were good, and in the process helped encourage a property bubble.

For trying to install confidence in the UK housing market, no one has done more than the Halifax.

Last summer it responded to the fears that had just started doing the rounds, that the property market would suffer as borrowers came off fixed rate mortgages, by suggesting that the additional costs involved would be relatively small.

“A borrower with a £114,000 mortgage, the average in 2005, taken out at the average two-year fixed rate in 2005 of 5.08 per cent,” said the Halifax last summer, “would be making monthly repayments of £669.02. When the deal expires this year, the new monthly repayments would be £733.72 - an increase of 10 per cent or £65 - assuming that the borrower moves onto the current average two-year fixed rate of 6.04 per cent.”

It suggested that such a hike would be eminently affordable – hence its bullish predictions on house prices.

But, nine months on, of course it is a different story – and at least some people on fixed rate mortgages which are about to expire, have got serious problems.

But a white knight may have come to the rescue.  The Halifax assertion of that period may prove valid – it’s just that while the white knight may yet save the Halifax predictions, the Halifax, along with most other mortgage lenders, could be the loser.

That is, all mortgage lenders apart from HSBC, for the UK’s biggest bank, not to mention one of the biggest banks in the world, is planning an audacious swoop on the British mortgage market that could leave it as the dominant player.

HSBC is set to match existing fixed rate mortgage offers which are due to end shortly with other lenders.

In other words, HSBC is planning to rescue holders of fixed rate mortgages from their forthcoming nightmare.

It goes to show that periods of down-turn are also periods of opportunity, and for HSBC, with its strong balance sheet, now is such a time.

It also goes to show how markets can self-correct.     When prices fall too low, some companies can exploit that, and as a result, prices eventually return to the norm.

The HSBC was one of the first banks to warn of subprime difficulties – first announcing write-downs over a year ago – yet losses have remained relatively modest at the bank.

It’s just possible that the bank has played the crisis like a supreme master.