Like my friend Mavis, I don't really know
I’m asked by lots of people in the market what is going to happen with Europe, the euro and lending volumes going forward for the next couple of years. I’m beginning to sound a bit like Mavis from Coronation Street, as frankly I don’t really know….
Nevertheless, lets speculate a little. Before the result of the Greek election we were all worried and that really remains the case today. How many of us would predict the next six months with certainty? This places a strain on everyone.
We have seen some very positive steps - the Bank of England felt sufficiently concerned about the UK economy to offer some new money to help bank liquidity. But once again, there are no hard targets to measure this money against what it’s spent on so it is very difficult to see exactly what the impact will be on either small to medium sized firms or on UK mortgage lending.
It’s no coincidence that mortgage price increases have slowed when politicians are asking questions
Balance sheet management is, quite rightly, the order of the day at all UK banks - particularly when there is volatility and uncertainty in capital and liquidity funding. I’m not over-surprised that the banks have taken the opportunity to manage their mortgage margins and the increases of 0.75-0.90 per cent that we’ve seen a lot of lenders implement can be traced back to the same worries over funding.
However, it is also worth noting that three month Libor hasn’t moved as much as expected this calendar year and the real liquidity in funding hasn’t moved as far as the increase in mortgage pricing perhaps called for.
The cynic in me could suggest that it is no coincidence that mortgage price increases have slowed when politicians are asking questions.
I also think Nationwide deserves a lot of credit for reducing fees and rates and almost calling a halt to what was a nine month inexorable increase in pricing - its support for our market has been truly outstanding this year.
It is a great shame that at the time the Bank of England announced greater support we had the raft of UK bank downgrades from Fitch, which has sparked an increase in the cost of bank borrowing.
This level of uncertainty at the moment is making it extremely difficult to look forward with any confidence at all.
Overall it is clear that cautiousness rules. I don’t think any observers are expecting anything other than a reduction in lending from 2011 - the Association of Mortgage Intermediaries is. The AMI is predicting an outturn between £125-135bn, more likely close to £130bn.
This is disappointing and some £10bn off the £139bn outturn in 2011.
I had thought we would edge forward to £150bn at the start of the year and was relatively positive - just check out my November 2011 to February 2012 articles in this magazine.
But none of us had counted on the eurozone crisis being the biggest drag to global growth. For example, I don’t think anyone could have guessed the difficulty Spain would find itself in and the subsequent impact this has had on Santander’s lending appetite.
If further volatility continues, that may not be the only lender that finds it difficult in the rest of 2012.
Looking back, I also called that Nationwide, Coventry and Yorkshire would be on an upward curve in terms of lending volume this year and we can see that in our own numbers for the year-to-date. It is rather comforting to see the mutual sector provide a lot of the increased lending but overall I think we can look at the £130bn with reasonable certainty - although Mavis would no doubt worry about this.
I do tend to believe our bigger lending partners when they say they haven’t moved their lending policy and credit risk but I think we’re all seeing it being far more forcefully implemented.
We are in a situation where it takes more client meetings to get lending over the line and so while policy hasn’t moved per se, perhaps it is being more rigorously enforced, which leads us to think that it has tightened.
I’m hoping this can be dialled down a touch going into Q4 2012 and 2013.
And what of the next two years? Well, still like Mavis, I really don’t know.
Like all of us I’m hoping Santander will be back for a little bit more, as it is an excellent supporter of our intermediary market.
This underpins my prediction that we will get back to around £140bn in total - but it does assume that Spain doesn’t implode further.
It really can make that much of a difference.
Then we only need Virgin Money to push forward from its launch in Q4 and with the other big lenders flat or slightly upward we get to this +£5bn/-£15bn level.
I really don’t see new entrants making a major difference on top of this, but of the others, HSBC in particular is in a very good place to grow further, particularly with it supporting Marks & Spencer’s initiative.
And am I the only one to notice how HSBC haven’t hasn’t moved its prices out too much over the last six months?
I suspect Tesco will also push things on along with some smaller lenders, like Aldermore.
Into 2014, I’m not even sure what my thoughts are at the moment.
Mavis’ head would be spinning… all these current liquidity concerns - just 19 months ahead - must mean that it is difficult to see more than 10 per cent growth in gross lending from whatever 2013 turns out.
That’s to £155bn for those not keeping up!
But Basel III and a general increase in the amount and cost of capital may mean that UK lenders need to bring in even more regulatory capital, maybe even through a rights issues.
If I were Mavis I’d be most concerned about this state of affairs, particularly as some of the UK banks’ share capital still stands at a discount to net asset values, as Hometrack’s chief economist Gary Styles recently pointed out.
In my view, it really is only in 2015 that a further £10bn growth to £160-170bn looks like making a material difference to total UK mortgage lending. Of course there are a couple of macro-economic events that mean that this all looks very silly, very quickly.