UK Banks to Loosen their Lending Standards to Maintain Mortgage Growth
Most UK banks and mortgage societies are losing their profit margins quickly due to the tight competition and the fall of the housing market. This leads the companies to lower their lending standards, as well as cutting some mortgage fees, in order to encourage the public to apply for a mortgage.
According to Moneyfacts comparative study, the number of banks willing to lend for mortgage deals increased up to 5% at 1,123 for the past six months alone. These banks also claim they’re willing to lend at least 90% of the property’s value to entice the potential investors and applicants to avail of a mortgage. Earlier this month, the HSBC’s M&S bank also increased their LTV (loan to value) by 95% on three of its loan mortgages products. They’ve also extended the payments’ term up to 35 years.
Other lending institutions have also taken measures like increasing their maximum loan sizes, reducing rates on LTV loans, and cutting some arrangement fees to maintain their profit growth. These show that most UK banks are now exerting tremendous effort to keep winning new businesses and leads without having to cut their profit margins further.
The Tight Competition
The mortgage experts claim the reason behind these efforts is because of the tight competition. Since the year 2018 started, the mortgage rates reached near historic lows while the funding cost increased. The recent rise of independent mortgage brokers gave the borrowers a wider access and range of options to apply for mortgages. Not to mention most independent mortgage brokers eliminate the hassle of dealing with paperwork, making them more ideal to transact with than traditional banks and mortgage institutions according to an analyst at UBS.
HSBC’s domestic business, for example, lost around £60bn due to the new ruling, which would’ve been used to expand their mortgage business and put more pressure against its competitors. Almost all of the UK’s banks and lenders also suffered a contraction in their profit and net interest margins. Sixteen out of 20 lenders reported they had weaker margins for the year 2018, while the other two lenders acknowledge the pressures on their mortgage business, according to an analysis conducted by Financial Times.
A Challenging Industry
Metro Bank’s CEO Craig Donaldson said that while business bankings have opportunities to manage their margins, it’s easier for them to cope with profit margins. However, those mortgage-focused companies may face a challenging year ahead.
While many UK banks have taken advantage of Bank of England‘s recent rise on mortgage rates, the higher interest fee became less attractive for borrowers, causing them to look for alternative ways to avail of an affordable mortgage.
Image Caption: Golding adds that UK banks must also innovate or digitize their process to provide hassle-free, convenient services to their clients when it comes to mortgage applications.
OneSavings Chief Executive, Andy Golding, said that most aggressive risk-taking was happening in specialized markets such as “second mortgages” or “second charge” on the same properties. According to him, they’ve noticed how competitors are adjusting their prices to top the risk curve, making more borrowers feel uncomfortable in trading in the said space. That’s why Golding says most notable UK banks must expect to overcome these downturns and challenges if they want to thrive in the mortgage industry. He says with the right mindset, they can always turn these challenges into opportunities.
More in Loans & Mortgages
Mortgage Rates Plummet as Housing and Real-estate Effects Begin to Ripple in Other Sectors of the Economy
The real-estate landscape seems to be experiencing its worst time in history since 2008 after rates for home loans plummeted in...September 18, 2018
How and Why Hotstreaks Are Becoming More Prevalent in Individual Careers
At some point in time, it’s a given that you’ve heard of people having a hot streak in their financial, sporting,...September 18, 2018
How Your Social Media Posts Could Affect Your Home Insurance Claims?
In this modern world where we can connect with people across the globe in just a few clicks, posting and sharing...September 18, 2018
Stop Committing these Money Mistakes to Keep Your Child’s Financial Aid
Many parents think they can stop paying attention to their child’s financial aid after they have gone to college. However, this...September 18, 2018
Why Inner Peace and Understanding is Important Before Investing
As is the norm for most investors, they like to obsess over a number of things regarding their investments such as...September 18, 2018
Walmart Finalizes the Buyout of a 77% Stake in India’s Major Retail Store, Flipkart
In a bid to make headway in the international market, Walmart Inc declared on Saturday last week that it had acquired...September 17, 2018
Here’s Why Hong Kong House Prices are Some of the Most Expensive in the World
There’s no doubting Hong Kong’s beauty and grace. Elegant skyscrapers that stretch to the heavens is what you meet when you...September 17, 2018
Want to Save More Money While Living a Languish Life? Move into these Affordable Countries!
Most Americans tend to quit their corporate job in their home country, despite the big salaries they have. The reason? It’s...September 17, 2018
Immigrants Can Now Avail of Online Career Counseling
One of the most challenging stages in our life is when we go looking for a job. The moment we graduate,...September 17, 2018