The continuing gloom in the housing market was the subject for discussion at talks in April between the Prime minister and the UK’s leading banks and building societies - including Barclays, HSBC, Lloyds, Nationwide and Royal Bank of Scotland. Mr Brown asked banks to pass on the interest rate cuts to consumers. In return the banks warned of a reduction in mortgage lending and that more liquidity needed to be poured into the financial system.
Downing Street denied that the meeting was a crisis summit, stating that it had been in Mr Brown’s diary for some time. Of course, this all took place on the back of extremely adverse coverage of the abolition of the 10-pence tax rate.
Despite many banks stating they expect moderate growth in new mortgage lending - albeit at higher rates - Bradford & Bingley’s surprise profit warning will do little to steady shareholders. In a further indication of market uncertainty, Citigroup’s internet bank Egg, announced last week that it is withdrawing from the UK mortgage market.
The latest report on the housing market by the Royal Institution of Chartered Surveyors has claimed that there has been a “collapse” in the number of transactions.
Responding to the study, the Department for Communities and Local Government said: “We are well placed to meet the challenges of the global credit crunch, the fundamentals of the economy are sound with low unemployment and historically low interest rates, and long-term demand for housing remains high…The issue affecting the market is fundamentally about the supply of credit - a different situation to the early 1990s which was about high interest rates and unemployment.”
But there is still some positive movement in retail banking. Lloyds TSB announced that it will offer mortgages to some Northern Rock customers when their present deal expires in a three-year agreement signed between the two banks. However critics may be quick to point out that only customers with the most attractive credit ratings will qualify.
The Bank of England and the Treasury blocked Lloyds TSB’s previous attempt to buy Northern Rock last August, citing competition concerns, so this latest news may come as little surprise.