Show me the money

I have not been monitoring what time bankers hit the fairways these days (although I
do know that a certain amount of UK mortgage business still takes place on the golf courses of the Algarve. You know who you are).

Nor am I aware of a technical definition of profiteering – exactly when does a lender cross the line from making a profit, to a healthy profit, to profiteering? But the
definition of the verb would seem to back up the charge, at least in some cases.

The Collins English Dictionary describes profiteering as making ‘excessive profits, especially by charging exorbitant prices for goods in short supply.’ We are all
painfully aware of the mortgage drought, so there’s your short supply. And as for excessive profits, last week’s revelation that the average margin charged on fixed rate deals has tripled in the last 12 months sounds eye-watering.

Official data released by the Bank of England shows that the margins charged on average fixed rate mortgages are now the biggest on record. For example, the spread on five-year money (the difference between the swap rate and the mortgage rate) was 0.82 percentage points a year ago. Now it is 2.43 percentage points.

That’s a big leap in anyone’s numbers. Of course, lenders point to the need to pay higher savings rates, rebuild their balance sheets and hold on to more capital (i.e. they don’t want to lend). Brokers and borrowers insist that lenders should behave
more responsibly and pass on lower rates, to make lending more accessible.

The Government makes the odd squeak in support of borrowers, lenders ignore them, and the problem rumbles on. But when it comes to the accusation of
profiteering, can one maintain that ‘exorbitant prices’ are being charged for mortgages? The average mortgage rate charged this time last year was 5.26%.

Lenders would point to the fact that this is a reasonable deal in historic terms. You just try telling that to a client pointing to the 0.5% Bank base rate, along with the higher fees and larger deposits currently demanded as standard.

Hold the bubbly It’s official. We are now out of recession. Manufacturing output is up, job appointments on the increase, property sales and prices rising and consumer
confidence burgeoning. That’s according to data from the Office for National Statistics, The Recruitment and Employment Confederation, Countrywide, Halifax and Nationwide respectively. These indicators have all turned around over the summer, and the  national press has jumped on them like a starved dog on a pile of bones.

With the National Institute for Economic Research predicting growth of 0.3% to 0.4% in the third and further quarters of the year, lost puppy Alistair Darling will also be wagging his tail – or at least hoping to shake off his dog-in-the-manger status.

The Chancellor insisted earlier this year that the economy would grow by the end of the year, and was much mocked for his optimism. As a recession is technically defined as the economy shrinking for two or more successive quarters, should the NIER prove correct, we may indeed be out of recession by 2010.

But is it really time to put out the bunting? All of the positive figures reported so gleefully by the newspapers are starting from very low bases. I’m no expert economist, but the predicted 0.3% to 0.4% growth doesn’t sound like a great deal to me.

And it will mean even less to the 500,000 people set to lose their jobs before Christmas. And the thousands more who are made redundant in the next financial
year when Government spending cuts hit public sector jobs.

According to a report last week from JP Morgan, a global regulatory crackdown on investment banks may force that sector to shed up to a third more of its staff too, though they may not elicit quite the same levels of sympathy as others.

We are currently running a £175bn budget deficit – the biggest since the Second World War – and somehow have to pay for the further £175bn in quantitative easing that has been pumped into the economy at some point. All of this can only have a material effect on the economy, and the housing and mortgage markets as part of
that. Sorry to be a party pooper, but I’m not planning to crack open even the  prosecco any time soon.