Mortgage borrowers will find it more expensive to take out loans in future.
Costs will be passed on after the banks are forced to implement reforms outlined in today's interim report into UK banks, and after the Government withdraws the taxpayer funded safety nets put in place during the credit crunch.
Once these are gone, effectively banks and other financial institutions will be allowed to fail.
The warning came ahead of today’s interim report on UK banks, after ratings agency Moody’s said it was reviewing the credit status of banks in the UK, and was preparing to downgrade their ratings.
Ratings are critical for banks and building societies, because they determine the price of their own borrowing on the financial markets.
Banks which have to pay more because of lowered credit ratings will pass the costs on to borrowers, who will face steeper mortgage rates.
Borrowers will also pay the price after the publication this morning of the interim review of Britain’s banks by Sir John Vickers, former head of the Office of Fair Trading.
The review recommends that the investment divisions of banks will have to be ring-fenced from their retail arms, and must hold extra capital reserves as insurance against investments that could be loss-making.
Currently, banks’ retailing arms cover losses made by their investment divisions – a situation which led to the bail-out after banks put millions of people’s savings at risk to cover such losses.
The bail-out in such circumstances also prompted calls for the banks to have their retailing arms split from their investment wings.
While Vickers report rejects the idea of a break-up of banks, the ring-fencing of banks' retail and investment arms will be a costly exercise. Lloyds will also have to get rid of a number of its branches, with the commission unhappy at the size of its market share following the merger with HBOS.
Comments
@PeeBee
Not less risk exactly but I want the risk to be in proportion to the reward. That is why I won't be buying property for a while. I can't see much upside but plenty of downside. It's going to take some time for all this excessive, risky lending and corresponding over-valued property to shake out.
Dom: Banks were required - like EVERY OTHER company that has shareholders - to make more money year-on-year. Making the same; or less, is simply NOT an option.
Banks make money based upon lending; and lending is geared to risk. 'Normal' risk does not pay the big money - so the bar had to be set higher and bigger risks had to be taken to maximise the profit from every deal.
Of course, the higher the risk, the higher the chance of the risk not paying off. They simply got away with it for far too long, by not only allowing the risks to be taken; but also by continually looking for higher risks to take.
YOU, on the other hand, look for what you envisage to be less risk. You move your monies about to wherever they are paying dividends TODAY. Fine - good for you - but please remember also that VERY FEW investments perform over a long period (15-20 years) in the way that property has, does - and no doubt, WILL.
@Ray - But if those mortgages had been lent wisely, there wouldn't have been a problem packaging and selling them on.
Access to cheap credit comes to an end. What's not to like?
@Ray
Of course the banks bear some responsibility but so do borrowers. It takes two to tango. I think con is a bit strong, they both just got greedy. For a while there was an idea that buying an overpriced house is a route to untold wealth.
@Dom
This 'mess' as you call it was created by the banks themselves gambling by packaging mortgages and conning people to buy them
This is a good thing. Too cheap credit got us into the mess we are now in.