Frank Eve is managing director of Frank Eve Consulting
The mortgage market is paying a high price for the international miss-adventures of our big banks.
According to the Financial Times three quarters of UK bank losses in the crisis were incurred in their international operations. Writing off these international loans constrains capital ratios and puts pressure on banks to shrink their UK balance sheets.
With losses running so high in their international divisions, banks have been forced to focus on other areas for profit, in particular UK mortgage lending.
Helped by the Bank of England with the Funding for Lending scheme, UK banks can off-set their international losses by maximising profits in their mortgage and savings areas where lending margins have never been higher and savings rates never so low.
This is the real reason the Bank of England is bending over backwards to help the banks, it’s not to help the mortgage industry, as a more important priority from their point of view is to keep the UK banking system solvent.
If the Bank of England really wanted to help the UK mortgage market, they’d open the Funding for Lending scheme to non- banks as this could transform the mortgage market by increasing competition. We may then see the reduced margins, competitive credit criteria and more realistic loan to values that the market badly needs.
In the same article the Financial Times went on to comment that one of the more heartening developments is the arrival of Handelsbanken in the UK offering basic retail and business banking services. They commented: “Maybe a modest amount of creative destruction is happening in a world otherwise strewn with Zombies.”
I agree, let’s get new banks into the market together with more funding to non-bank lenders.