Crisis changes face of UK banking

Last Modified: 03 Oct 2008
Source: PA News

The Bank of England's report on credit conditions made for painful reading this week and the message was clear - borrowers are facing a severe lending drought that is going to get worse from here.

But the latest twist in the global financial crisis has changed more than just the banking sector's appetite for lending, it has altered the entire British banking landscape.

Since the events of the past few weeks, sparked by the collapse of US investment banking giant Lehman Brothers, consumers have seen the UK's "big five" banks whittled down to four, with HBOS set for takeover by Lloyds TSB under a hastily arranged rescue deal. Bradford & Bingley has also been nationalised and its branches sold to Abbey owner Santander amid yet more consolidation on the high street.

Santander is already in the process of snapping up Alliance & Leicester, which together with the B&B branch acquisition will see the Spanish group become a dominant force in UK banking. It will end up with nearly 1,300 branches and a 10% share of the UK retail savings market.

Meanwhile in the building society sector, there are yet more mergers. The UK's biggest mutual Nationwide is getting bigger still, with the lifeline deal to take over smaller rivals the Derbyshire and the Cheshire, due to complete by Christmas. And the Chelsea Building Society is taking over the Catholic, with experts predicting that others will follow suit in both the bank and mutual sectors as the survival of the fittest - and biggest - rules.

Consumers are waking up to a different banking system, one that is changing both globally and at a local level. The Bank of England's credit report found that banks tightened up on lending to households and businesses more than expected in the three months to mid-September and were expecting to clamp down further still.

The availability of loans to borrowers has undergone a seismic shift over the past year as a result of the credit crunch. Prior to the crisis, which took hold last summer, there were nearly 16,000 buy-to-let and residential mortgage products in the market. Now there are just over 3,400, according to financial information firm Moneyfacts. It added that one in 10 mortgages were withdrawn in the 24 hours after the B&B nationalisation bombshell.

It is therefore no surprise that official figures showed net mortgage lending ground almost to a halt in August - down by 95% during the month to a record low of £143 million. The Building Societies Association announced a similar stalling in lending across the mutual sector, with net lending of minus £38 million - meaning that customers actually repaid £38 million more than they borrowed.

Before the second wave of the credit squeeze hit last month, there was a brief spell of respite for borrowers, as more products began to come on to the market and rates started to ease. Now lenders are rushing to pull their best buy products, increasing rates and tightening criteria once again.

The average deposit that a borrower must stump up has doubled from 10% a year ago to 20% now for a mortgage, while some lenders will not take anything less than 40% of a property's value.

These news feeds are provided by an independent third party and Channel 4 is not responsible or liable to you for the same.