UK Mortgage Market: Banks and Borrowers Face Greater Uncertainty
DBRS Morningstar has released a commentary focusing on the increased uncertainty faced by UK banks and borrowers in terms of mortgage lending.Key points include:
• The UK mortgage market suffered some disruption after the UK government’s mini budget on September 23, which is expected to lead to higher policy interest rates, led to a number of lenders temporarily withdrawing some mortgage rate products.
• A significant part of the UK mortgage market is set to refinance within the coming years at higher rates, which could put pressure on borrowers’ ability to repay their mortgages.
• We expect banks will remain cautious in their underwriting and pricing of their loan products, including residential mortgages, in the months to come whilst the full impact on UK Banks’ asset quality and profitability will be more visible over coming quarters
“A weakening economy will present a number of challenges for the asset quality of the UK banks’, as well as being likely to impact loan growth, including SME and corporate lending, and consumer loans,” notes Maria Rivas, Senior Vice President, DBRS Morningstar. “As such, the residential mortgage loan books are not necessarily likely to cause the biggest losses for banks in a severe downturn. However, it is still early to assess the full impact of weakening economy and higher interest rates on the banks’ mortgage portfolios, asset quality and profitability.”
Barclays is a holding company. Through its subsidiaries, Co. is a financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services. Co.'s business segments are: Barclays U.K, which provides everyday products and services to retail customers and small to medium sized enterprises; Barclays International, which delivers products and services designed for Co.'s corporate, wholesale and international banking clients; and Head Office, which comprises head office and central support functions (including treasury) and businesses in transition.
HSBC Holdings is a financial services holding company. Through its subsidiaries, Co. operates four businesses: Retail Banking and Wealth Management, which serves customers through four businesses: Retail Banking, Wealth Management, Asset Management, and Insurance; Commercial Banking, which provides working capital, term loans, payment services, and international trade facilitation; Global Banking and Markets, which delivers a range of transaction banking, financing, advisory, capital markets, and risk management services; and Global Private Banking, which provides a range of private banking services. At Dec 31 2017, Co. had total assets of US$2.52 trillion and deposits of US$69.92 trillion.
Lloyds Banking Group is a financial services provider. Co.'s main business activities are retail and commercial banking, general insurance and long-term savings. Co.'s Lending products are mortgages, credit cards, personal and business loans; Deposit products include taking Current accounts and savings accounts; Insurance products are home insurance, motor insurance and protection; Commercial financing products includes term lending, debt capital markets and private equity; and Risk management products includes interest rate hedging, currency and liquidity. As of Dec 31 2017, Co. had total assets of £812.1 million and total deposits of £448.0 million.
DBRS Morningstar is a global credit ratings business with 700 employees in eight offices globally. DBRS and Morningstar Credit Ratings are committed to empowering investor success, serving the market through leading-edge technology and raising the bar for the industry.
Together, we are the world’s fourth largest credit ratings agency and a market leader in Canada, the U.S. and Europe in multiple asset classes. We rate more than 2,600 issuers and 54,000 securities worldwide and are driven to bring more clarity, diversity and responsiveness to the ratings process. Our approach and size provide the agility to respond to customers’ needs, while being large enough to provide the necessary expertise and resources. For more details visit us at dbrs.com.
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