What Does Bradford & Bingley's Collapse Mean To You?

Bradford and Bingley's collapse will affect most of us. Here's how.

So Bradford and Bingley hasn't been able to resist the financial tsunami. The former building society has been nationalised by the UK government. The savings side of the business has been sold to Santander, which owns Abbey as well as Alliance & Leicester. The government is taking on Bradford and Bingley's low-quality mortgage book.

So what does it mean to Fools?

Taxpayers

Most Fools are taxpayers and we now own Bradford & Bingley's £42bn mortgage book. Much of this book is made up of risky buy-to-let loans.

This book isn't worthless. Many of the borrowers will gradually pay off their mortgages in the years to come as originally planned. However, I fear that the government may not get back its full £42bn so this could be a further long-term burden for us all.

Shareholders

Shareholders in Bradford & Bingley have had a rotten year and now their shares have been taken by the government. I suspect some shareholder action groups will push for compensation for shareholders and we could see some litigation in the courts. But the most likely scenario is that the shareholders will receive nothing at all.

I feel especially sorry for people who have held these shares as a long-term investment since demutualisation in 2000. It's a very sad story.

Savers

The savings market has been buoyant over the last year. The credit crunch has meant that banks haven't been able to raise finance from the money markets; so banks have been forced to rely on ordinary savers instead. As a result, we've seen high savings rates on offer - significantly higher than the Bank of England's base rate.

Bradford & Bingley's Internet Saver Issue 3 has been one of the best savings accounts out there paying 6.51%. The account is now being operated by Santander and the cracking rate is still on offer as I write.

That said, Santander doesn't have a pressing need for cash, so it may cut the rate before too long. There are several other accounts still paying around 6.5% such as the ING Direct Savings Account, so rate tarts may want to switch.

There's also a good chance that the Bank of England will reduce its base rate in the next few months - that could give savings rates a downwards push across the board. Now may be a good time to sign up for a fixed rate savings bond where you could lock in a rate higher than 7% for a year.

Property owners

Property owners with Bradford & Bingley mortgages should see no change in the near future. Further out, B&B borrowers may face less attractive terms once their current deal ends.

Of course, B&B has been a big player in the buy-to-let mortgage market. Today's news will hit confidence further in that area and I expect house prices to carry on falling.

The banking market

The UK banking industry looks very different compared to a year ago. Lloyds/HBOS will now be the dominant player and looks too large for comfort. What's more, three smaller players - Northern Rock, Alliance & Leicester and Bradford & Bingley - are no longer independent.

You could argue that Santander is now big enough in the UK to be classed as a new member of the `big 5'. That's welcome.

But overall, the UK banks sector looks less competitive than it was a year ago. That will mean less attractive deals and is bad news for us all.

Any more shocks to come?

I can't say for sure. We live in extraordinary times.

More: 10 Ways The Credit Crunch Changed The World