Problems could face the mortgage markets for the next eighteen months
June 27, 2008
According to one industry official the mortgage and banking industries could be set to face challenging times for at least the next eighteen months, as the effects of the global credit crunch continue to take their toll in the money markets. The bleak warning came from the boss of HBOS, who was recently speaking at the Financial Services Week conference in Edinburgh.
The HBOS boss, Andy Hornby, said that in addition to uncertain times for the mortgage and banking sectors it could also take years for property values in the UK to make a comeback. He also commented on the cash injection that the Bank of England had made to the money markets, stating that it was welcomed by the industry. He added: “However, authority intervention is not a proxy for the return of the wholesale funding market to former levels. We are planning on the basis that securitisation markets will not reopen this year, and we will have to wait until well into 2009 for people to turn back to signs of normality.”
Hornby continued: “The Catch 22 is that all banks have to be prudent for the next 18 months; we all have to make sure we are operating within the liquidity constraints and the surety of the wholesale markets. Until they reopen back to traditional volumes, it is inevitable, particularly in the mortgage market, that liquidity will remain relatively constrained.”
He did go on to reassure listeners that the situation was not yet as bleak as that seen in the 1990s, adding: “The average loan to value for mortgages out there is only 44%, most consumers have got plenty of equity in their homes. Secondly it all comes down to unemployment - we are a million miles away from the three million unemployment level we had back in 1991-2.”
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