Stormy weather

Mark Davies

January 14, 2019

Mark Davies is managing director of Link Mortgage Services

Forecasts of inclement weather abound as temperatures are set to drop over the coming weeks according to meteorologists at the time of writing. While we reach for the protection of scarves and hats, there is little some can do to avoid catching an economic chill.

The collapse of Amicus and retirement of Fleet and Secure Trust Bank from new business lending underline how fragile the mortgage industry is.

The malaise is, of course, not confined to mortgage lending. The news that retailers have just experienced the poorest Christmas sales since the 2007 crash points to borrowers and lenders lacking confidence in the run up to Brexit.

You might think this is not surprising given the average UK family now owes £15,385 in unsecured debt. In its annual report into the nation’s finances, the Trades Union Congress said the total amount owed rose to £428bn in the third quarter of last year.

In December figures from the Bank of England showed that mortgage balances with arrears grew for the first time since Q2 2016.

Investment banks and investors are keen not to repeat the mistakes of the past and with thin margins and too many lenders fighting for a slice of a stagnating or diminishing market, it is perhaps prudent not to over commit.

Credit, like the weather is seasonal, and it’s tempting to conclude we are perhaps turning towards a more turbulent period. Brexit, whatever that means under whatever government, is an uncertain beast. What we can surmise is that unemployment and interest rates can only go up if they go anywhere and lenders will be keen not to be over exposed to any economic shocks.

If we are about to experience a change in the credit cycle, many lenders will know they do not have enough ‘grey hair’ to know exactly how to manage a downturn in fortunes. Fortunately, that experience is available at Link.

Until the clouds disperse, we are bound to reflect what kind of weather we are in for. The question pre any Brexit solution is whether we are in for a shower, sustained downpour or a perfect storm

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