Judging by some of the coverage of today’s decision by HSBC subsidiary First Direct to stop new mortgage lending, you might be forgiven for thinking that the end of the financial world is finally nigh – yet another over-ambitious lender sucked into a sub-prime Rock-style vortex.
However, look closer and you’ll see that First Direct is just calling a temporary halt to new lending due to unprecedented demand. Now that Northern Rock (previously the UK’s biggest lender) has pulled out of the market entirely, and others are putting up their rates due to the higher cost of funding, First Direct has been swamped with new applications – five times its usual levels, the bank said today - and it can't process them quickly enough.
Since it has regularly topped the ‘best buy’ tables for mortgages (it’s been offering a two-year fixed-rate deal at a tidy 4.95%), it’s not surprising that First Direct has been profiting from its rivals’ misfortunes/ misadventures. But today’s move is an admission that it doesn’t have the scale to cope. ‘Rather than increase interest rates dramatically to discourage new applications, we've decided to withdraw temporarily from offering mortgages to non-customers until we've cleared the backlog,’ CEO Chris Pilling said – which in the circumstances sounds pretty sensible to us.
But even if it’s not an indication of global financial meltdown, that won’t be much consolation to the thousands of UK homeowners who’ll be looking to remortgage this year. Despite the fall in interest rates, new mortgage rates have been shooting up across the board because it’s so much more expensive for banks to borrow money – and with First Direct and others closing their doors to new applications, that’s only going to reduce the competitive tension and increase the demands on the remaining lenders.
So it’s perhaps not surprising that the number of new mortgage approvals fell to 73,000 in February, according to the Bank of England - a 39% drop on the same month last year. It also means prospective mortgage lending is at a 13-year low; further fuel to the argument that the housing market is likely to keep slowing down for the foreseeable future.
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