Brian Murphy Blog: Greece – and why it matters to the UK

Friday 24th June 2011

The current debt crisis taking place in Greece we may think is of little interest or consequence to the UK. That may be true as far as the public are concerned but to our banks and the effect that the events unfolding in Greece may have on our European neighbours banks is a potential concern for the wellbeing of our economy

British banks exposure to the Greek debt is comparatively small at circa £12bn, however, relative to our near European neighbours in France and Germany who have between them over £50bn of Bank exposure alone we are relatively lightly exposed if Greece defaults on its repayments.

Many people in Greece now support default and possibly an exit from the Euro. The big issue for the European Central Bank is that if Greece is allowed to fail the likelihood of contagion occurring with other embattled economies including Ireland, Portugal and possibly Spain increases dramatically and our Banks exposure to these economies in terms of loans is significant. British banks have over £120bn of loans with Ireland therefore if losses occurred that would have a big impact on our still recovering banking sector.

Banks faced with losses would clearly have less capital to lend within the wider UK economy. This may possibly result in a pulling up of the drawbridge on funding for mortgages and more likely restricting or limiting the availability of loans at higher loan to value due to the capital requirements of lending at higher risk levels. If this occurred this would reverse an area where we have seen some welcome increased appetite in recent months!

Brian Murphy is Head of Lending at Mortgage Advice Bureau

National Mortgage Index – May 2011