The panic over Northern Rock could result in the Government placing limits on how much funding can come from the money markets.
Mehrdad Yousefi, director of distribution and sales at Wave and former head of intermediary mortgages at Alliance & Leicester, says he expects the Government to change the funding regime to stop a similar crisis in the future. He says the Government could detail how much and what type of funding can come from the capital markets.
He says: “The Government will undertake a review of current funding to make sure we do not see a repeat of Northern Rock. They have been extremely unlucky and have not done anything wrong but when the international banking market grinds to a halt, if the bulk of a bank’s lending is reliant upon the capital markets, it is going to create problems.”
Premier Mortgage Service managing director John Malone says the liquidity crunch will cause significant changes in the mortgage market in the next six to 12 months.
He says: “I expect volumes of business to be lower in 2008 and the availability of mortgages will reduce. All lenders will be looking more closely at affordability and criteria. Lenders will look even more closely at distribution channels and they will be looking more at quality rather than quantity.”
Yousefi says most financial institutions will not be growing their asset-based lending in 2008, with the industry being much more cautious.
Commentators believe building societies will see growth curtailed over the next year as many have used securitisation to boost profits. A source says: “Almost all the top 10 building societies will see a drop in growth or no growth at all over the next six to 12 months.”
Building Societies Association director general Adrian Coles says: “Most building societies do not securitise, a few do, but it is a very peripheral way of funding and a small proportion of their activity so we do not anticipate it to be a problem.”