British Pound: Watch Out for More Housing Market Problems
Last week, we indicated that the British pound could break 2.0 if disaster hits UK mortgage lenders.
The currency is trading below 2.0 against the dollar, but thankfully there has been no disaster. However, trouble is still brewing for mortgage lenders or banks that have mortgage lending divisions and things are only expected to get worse. First Direct, which is apart of HSBC announced today that they will be withdrawing all of the mortgages to any homeowners who are not existing customers. Standard & Poor’s is also reporting that Lehman Brother’s has stopped writing mortgages to 2 of their UK units. Halifax, the UK’s biggest mortgage lender is expected to follow suit within days. Being forced to turn away business because you have too many customers should be perceived as a good thing, but unfortunately in the world of mortgage lending in UK, the only reason why First Direct and Halifax are being flooded with new applications is because other lenders like Nationwide gave taken measures to increase the interest rate on loans or withdraw their mortgage lending products completely. If everyone stops providing new mortgages, it could cause the entire UK housing market to freeze up. Meanwhile, this morning’s UK economic data was mixed with construction sector PMI contracting for the first time in six years and net consumer credit hitting a five year high. Service sector PMI is due for release tomorrow and unlike the manufacturing sector, we expect activity in the service sector to slow.