Jul 31, 2021

UK banks scramble to meet demand for mortgages

For much of the past year, bankers feared that demand in the £1.6tn mortgage market would disappear after the withdrawal of a temporary stamp duty holiday. All the so-called Big Four banks - Lloyds, HSBC, Barclays and NatWest - grew aggressively during the first half of the year, though several executives singled out HSBC, historically the smallest of the four in mortgage lending, for being "Back with a vengeance" after a slowdown at the height of the pandemic. New rules forcing banks to "Ringfence" their UK businesses from their international and investment banking arms left it with billions of pounds of customer deposits that could only be used in the UK. Its share of annual gross mortgage lending increased from 5.6 per cent in 2015 - the year after ringfencing legislation was passed - to 10 per cent in 2020, according to data from UK Finance. Atom and other midsized banks such as Metro Bank have started lending to slightly riskier "Near prime" borrowers in recent months, reflecting both growing confidence in the economic outlook and the difficulty of competing with the largest banks on lower risk loans. The average interest rate charged for a two-year fixed rate mortgage with 75 per cent loan-to-value came close to an all-time low in June, according to Bank of England data, and several other banks intend to keep pushing to gain market share alongside HSBC. NatWest cautioned on Friday that profit margins began to decline toward the end of the second quarter but a senior executive at the bank said it still has "Capacity to grow" because its share of the mortgage market remains lower than its share of current accounts.

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