s to the Bank of England taking over
e mortgage market today? month: issues facing the mortgage industry
When financial markets began losing faith in Greece’s ability to service its debts, it started a chain reaction throughout Europe. In the UK, the wholesale mortgage funding sector, which had started to recover after the closure of the market during the credit crunch, experienced a short-term blip when some banks that were expected to announce new securitisation deals, put them on hold. New deals have now been completed but so far in 2010 there have been only a handful of new issues. The problems facing Greece have created a general feeling of uncertainty, making investors across the globe more nervous about taking risks. And there is concern that Greece defaulting would create credit losses for banks and other financial institutions around the world with uncertain knock-on effects on their creditworthiness. This makes many in the UK wary. In 2011 the Bank of England’s Special Liquidity Scheme, the emergency support scheme that has allowed banks and building societies to swap mortgage-backed bonds and other assets for treasury bills, will end. This means lenders will have to find a way to pay back the SLS and to fund their lending. But, if the economic crisis in Europe worsens, the wholesale markets on which lenders depend are again likely to suffer from a wave of investor nervousness. So what will happen? We do not know how the new
government plans to address the looming funding gap but these issues need to be addressed soon. The current lack of funding means lenders are already stringent in their lending criteria and any further contraction in lending would likely damage the fragile recovery.
Against what is clearly a very difficult policy backdrop, putting in place the building blocks for more stable funding channels should be a key priority not only for lenders themselves, but also for the new government, despite its silence on the issue so far. Ultimately what happens to the flow of mortgage lending will be influenced by the transition away from government funding support.
Rob Thomas, senior policy adviser, CML
What is quite striking about our current working environment is that we are being softened up daily with bad news re the UK economy – in the shape of the first report from new Office of Budget Responsibility and the speech by the Chancellor at the Mansion House, the Emergency Budget towards the end of last month and then the Expenditure Review in the autumn. Reducing expectations also reduces confidence and for many anxiety is growing regarding their jobs, mortgage payments, services, pensions and much more. At the same time we get odd murmurings of optimism not least with respect to the mortgage market. Lending edging up, new entrants to the market, more
products on the market and a greater number of higher LTV loans becoming available – all sound like good
news.
Depending what you read, listen to, look at and who you talk to you could begin to think it was the start of business as usual.
Like everyone else I am keen to see some normality return and for us to think positively and creatively about the future. Certainly this is what IMLA is doing and with new members coming on stream we are looking forward to our 2010/2011 year.
However the backdrop regarding mortgage lending, mortgage funding and competition remains quite depressing. It is very hard to see lending and competition really picking up when the funding via the wholesale market remains so limited and retail has not filled the gap. The industry is still trying to persuade government, parliament and the authorities that there is a problem that must be tackled if it is not to make the overall position worse. The reaction is still very mixed – some take the view the industry is crying wolf, others seem to see it as justice done. And many just haven’t thought about it – there is after all quite a lot going on! What will another month bring? We shall soon see.
Peter Williams, executive chairman, Intermediary
Mortgage Lenders Association
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nia@thepublishinggroup.co.uk mortgAgE introducEr JULY 2010 19
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