Banks and mortgage lenders continue to face uncertain and challenging conditions. Most commentators agree that their predictions for 2011 are uncertain, given the instabilities in the wider global economy, the impact of UK fiscal austerity measures and the possibility of the economy flat-lining or a “double-dip” recession. Brendan Brown is more upbeat in his commentary, although he has some anxieties about the outlook for the uk.
The CML forecasts continued subdued lending levels (CML forecast summary 12 August) due in no small part to the fact that funding for lenders will continue to be hard to come by. The Bank of England’s recent Financial Stability Report (“FSR”) estimates that the financial sector has around £800 billion of wholesale assets to refinance over the next 30 months. The Special Liquidity Scheme will not be extended, and anxieties over European sovereign debt continue to depress the wholesale markets. Stephen Green’s letter to George Osborne of 6 August identified the need for the BBA Taskforce to make recommendations to improve the liquidity and funding of the banking system and specifically to propose industry and policy measures to restart the securitisation market. Sensibly the Basel III outcomes were proportionate and regulators resisted the temptations to punish the banks.
The prospect of more restrictive mortgage regulation in the Mortgage Market Review could adversely affect lending appetite with increased limitations on products and tighter lending criteria excluding many borrowers including first time buyers and those looking to re-mortgage.
Arrears and repossession have been surprisingly low, causing the CML to revise downwards its predictions for the remainder of 2010. Commentators suggest this is unlikely to last. The possibility of higher interest rates, reduced government support for mortgage rescue schemes and the looming loss of public sector jobs (estimated by the OBR at 600,000 over the next five years) all suggest that repossessions will rise if the broader economic picture worsens.
