Goldman Sachs says the restrictions imposed after the 2008 global financial crisis are driving up house prices in England, pushing business practices that have resulted in ultra-low interest rates for homebuyers capable of making large down payments, the Daily Mail reported on Saturday. ( August 7).
Fencing is the practice of dividing business operations within a company so that problems in one area cannot spill over to other areas. These areas can be business lines, geographic regions, or a combination of both. In the UK filing in question, the fence required after the 2008 global financial crisis prevented large investment banks from using some of their accumulated capital in traditional investment banking transactions. However, they are allowed to use deposits to apply for mortgages – and they do so quickly enough to lower rates and even push some traditional lenders out of the mortgage market.
Bankers argue that potential new buyers are being squeezed out of the market, giving existing homeowners, who have accumulated capital, the opportunity to raise prices.
For the most part, the loans issued offer fixed rates for a term of two to five years and with a floating rate thereafter.
One lender cited by the Daily Mail, Halifax, is ready to start offering loans at a fixed rate of 0.83% for the first two years to borrowers who have a 40% investment. Another lender, according to the newspaper, will offer five-year fixed-rate mortgages at 0.99 percent.
The Daily Mail quoted British mortgage expert Ray Bulger as saying that a five-year rate below 1 percent is the first thing he has ever seen.
“This is another regulatory intervention that leads to cheap money and makes it even harder for novice shoppers to climb to the top,” an unnamed banker told the Daily Mail.
Downward pressure on rates drove lenders Sainsbury’s Bank and Tesco Bank out of the mortgage market, according to the newspaper. Anticipating the impact on the profitability of banks, senior analysts at Goldman Sachs downgraded their forecasts for the shares of Barclays, Lloyds, NatWest and Virgin Money, the newspaper said.
Fencing has become particularly important in recent times, as clients have deposited hundreds of billions of dollars in UK accounts since early 2020, according to Goldman Sachs quoted by the Daily Mail; at the same time, lending grew by only 25% of this indicator.
“This has led to a significant increase in excess deposits trapped in the barrage of large banks,” Goldman said in a report cited by the Daily Mail. “This, in our opinion, is the main reason for the fall in prices for mortgage loans. The decline in prices happened faster than we expected. “
One lender, UK-based Fleet Mortgages, Hampshire, announced in July that it was acquired in part to gain access to a stack of deposits that the buyer, Starling Bank of London, has amassed over the past two years.