Home Funding chief executive Tony Ward fears the mortgage market could take 10 years to recover because there will be no significant activity in the securitisation market for up to five years.
Speaking to Money Marketing, Ward says lenders will continue to struggle to obtain sources of funding and potential borrowers will find it difficult to get a mortgage for years to come.
He says: “We have an over-leveraged economy and we have got to get it back to some sensible base before we can take it forward again. That means I do not think we should expect to see a return to the pre-2007 days any time soon. We are going to see a market dominated by a small number of lenders and very flat lending in the consumer markets for some time to come.
“The question is, did the 10 years start in 2007 and are we three years into it or not? I would certainly hope so but we have still got quite a few years left to run on this.”
Ward feels a recovery in the securitisation market is key to a wider recovery in mortgage and housing markets but feels this could be around three to five years away.
He says: “I do think the return of the securitisation market will lead to a recovery of the mortgage and housing markets and the economy overall. I do not see a return to securitisation markets this year. We will see deals emerging but I do not expect to see a lot of transactions.”
Ward says the funding problems affecting lenders will be made worse when they have to repay the Government-backed schemes which provided banks with liquidity in the aftermath of the financial crisis.
He says: “The Bank of England said in its financial stability report at Christmas that banks have got to raise between £400bn and £500bn between now and the end of next year. That is roughly half of what has had to be raised in 2010, 2011 and 2012.
“One of the ways an individual bank can raise money is to sell assets. If they sell to another bank in the UK, it does not make any difference to the total UK capital flows. We need new money to come into the UK.”
Ward says foreign investment in the UK economy and, in particular, UK bonds, will prove to be a vital source of funding.
He says: “The only way we can get new money is if we are seen as a good bet, the economy is being well handled by politicians, bankers and regulators and we are seen as a good choice compared with others around the world.”
Ward predicts the private rental sector in the UK will boom while banks lack the funding for mortgage lending.
He says: “We have got a fundamental change which will evolve out of all of this. I have to conclude the private rental sector is going to have to take up the slack and as it does, rents are going to rise. There are big political and social changes going in the UK and they will have very long lasting effects.”