Global chaos as Congress rejects bail-out

London and European markets are in freefall upon opening this morning, continuing a chaotic 12 hours for global indices following the rejection of the US $700bn bank bail-out package.

At 8.30am, the FTSE100 had already plunged 144.95 points, or 3%, to 4673.82. HBOS, RBS and Lloyds TSB are among the hardest hit.

Paris’ CAC is down 2.57% to 3851.68, while Frankfurt’s Dax is 2.4% lower to 5667.86.

It follows the largest ever points fall for the Dow Jones on Monday, which plummeted 777.68 points, or 6.98%, to 10,365.45. The broader S&P 500 fell 8.81%, while the tech-heavy Nasdaq dived 9.14%.

Asian stocks continued the decline on Tuesday, with Japan’s Nikkei 4.12% lower and Sydney’s S&P500 down 4.3%.

While US markets were already suffering a sharp decline in early Monday trading, news Congress rejected the bail-out sent shockwaves through Wall Street.

The bail-out vote was defeated in the house 228 to 205, with just 65 Republicans supporting the bill and 133 turning against party leader President Bush. Democrats backed the bill 140 to 95.

It is now expected US Treasury Secretary Hank Paulson will reconvene with party leaders to quickly thrash out a deal to take back to Congress as early as Thursday.

“I’m disappointed in today’s vote, but leaders on both sides of the aisle worked hard. I’ve spoken to them and I know they share my great disappointment,” Paulson says.

“Our tool kit is substantial but insufficient. We’ve got much work to do. This is much too important to simply let fail.”

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Mortgage lending plummets

According to the latest Bank of England data, new mortgage lending to individuals in August 2008 fell to £143 million, just 5% of net lending in July.

The 12-month growth rate slowed further, to 6.2%, and the three-month annualised growth rate fell by 1.0 percentage points to 2.6%.

Within the total, the increase in net lending secured on dwellings (£0.1 billion) was below the increase in July and the previous six-month average.

The 12-month growth rate slowed further, to 6.0%. The three-month annualised growth rate fell by 1.2 percentage points to 1.9%. The numbers of loans approved for house purchase (32,000), remortgaging (64,000) and for other purposes (39,000) were all lower than in July.

Ross Bowen, managing director of Connells Survey & Valuation, said: “While these figures were expected, the latest and unprecedented merger and takeover news in the financial sector, is doing little to restore confidence to the markets. LIBOR is back up, and lenders will have to reflect this in the rates they’re offering borrowers. At a time when banks have continuing lending constraints, the number of people seeking to secure affordable mortgages will come under more pressure.

“The government’s intervention with Bradford & Bingley shows they have learnt from some of their previous mistakes, but it does not solve the lack of liquidity in the mortgage markets. The clock is ticking and we eagerly await Sir James Crosby’s report and recommendations on the mortgage market. The government, Bank of England and FSA must act now to help lenders and borrowers and play their pivotal role in rebuilding confidence.”

Darling commits to action on economy

Alistair Darling has pledged to take action to address weaknesses in the financial system.

In an interview this morning with the BBC the chancellor said he would take action to promote long-term economic stability but has refused to elaborate on the specifics of his plan.

During the chat on Breakfast this morning, which was screened live from the Labour conference in Manchester, he refused to comment directly as to whether the changes would include an increase in income tax but hinted that money would have to be returned to the coffers at some point.

He says: “It is not the time to take money out of the economy.

“If you borrower money you have to get the balance between taxing and spending right but you do it over a period and support the economy over the period.”

Darling also encouraged banks to behave responsibly in the current crisis and said that the government must “toughen up” the economic system.

This strengthening will likely include measures to address City bonuses but Darling says this is only one area the Financial Services Authority is looking at.

Investment advice

If you had purchased £1000 of Northern Rock shares one year ago they would now be worth £4.95

With HBOS, earlier this week your £1000 would be worth £16.50

£1000 invested in XL Leisure would now be worth less than £5

But if you bought £1000 worth of Tennent’s Lager one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214

So based on the above statistics the best current investment advice is to drink heavily and re-cycle

HBS offers ‘create your own proc fee’ facility

Home Buyer Systems has unveiled a new facility that enables mortgage advisers to create their own procuration fee, paid to them by the customer, when recommending direct-to-lender mortgage products.

The new facility, which analyses and compares all mortgage costs including interest and fees, is now available within both the full Home Buyer System and the HBSLite version. The lenders in question are only shown and discussed after the fees have been agreed.

Home Buyer claims the new feature enables brokers to search the entire mortgage market using sourcing information from Defaqto and then produce a comparison, which finds the cheapest direct-to-lender product and the cheapest intermediary product. This system enables brokers to indicate which product provides the best value, taking into account the fee that the customer will pay them.

Once the fee analysis has been produced, the research report showing the options available is then printed and the customer selects which option they want to proceed on. The system will print an IDD which sets out the options to save the Adviser having to produce one of their own, providing the necessary proof needed for FSA compliance purposes. Home Buyer System and HBSLite already generate all the documentation needed for brokers to introduce direct products, including fee agreements, customer permissions for the broker to act on their behalf, with the lender, and KFIs.

Richard Angliss, managing director of Home Buyer Systems, said: “We have built the new fee analysis facility in response to customer demand, as more and more firms are realising that they need to charge customers for their professional skills, and that they need an income that is not at the mercy of lenders.

“We found that our customers who were successfully charging fees were using a fee justification analysis to enable them to make charging fees a natural part of their approach. The problem for them was that it was taking a lot of time and effort. The new Home Buyer facility has broken new ground in giving brokers the tools to demonstrate their worth to customers in accurate figures at the click of a button.

“The pilot stage has also shown that the fee analysis facility is proving to be a powerful sales message that is helping users to survive and rebuild their businesses within the toughest market conditions for more than a decade.”

“Great time” to buy property according to NAEA

The National Association of Estate Agents (NAEA), the residential sales arm of the National Federation of Property Professionals (NFOPP), has called on consumers to be patient and continue to see buying a home as a sound investment.

Peter Bolton King, chief executive of the NAEA, said: “The property market has been unsteady since the start of the year and quite an unpredictable one. It has been a tough time for the industry and a loss of confidence from consumers is clear from the drop in sales and a ‘wait and see’ approach being adopted by so many.

“There has been a stream of negative information portrayed in the media and despite all of the pessimisms surrounding the industry a property should still be seen as a sound investment. The market is shaky now but it will return in the next year or two and when it does it will offer substantial returns. The reduction in new build homes is serving only to increase pent up demand. As long as a home is purchased with the plan to settle in and keep it for the foreseeable future then now is a great time to invest in a property.”

Mortgage lending slides 12% in August

Gross mortgage lending continued to fall in August and has reached its lowest figure in more than three years. The amount of money lent for mortgages has fallen by more than a third in the past year, with the trend expected to continue.

The Council of Mortgage Lenders’ (CML) latest figures show gross lending in August was £21.8bn, down 12% from £24.7bn in July and 36% lower than in August 2007.

Last month had the lowest lending figure since April 2005, and was the slowest August since 2002.

Michael Coogan, director general of the CML, says low turnover in the housing market and low remortgage activity suggest lending figures will continue to be low in the near future.

“These figures reflect the heightened uncertainty for both lenders and consumers in the mortgage market at present,” he says.

“Lenders are uncertain about future sources of funding and the cost of funding, while consumers are unsure about how much further and for how long house prices will continue to decline.”