Crosby Report and a glass of Shiraz! - 16.12.2008

Author: Jeni Browne Posted on: 16 December 2008

What better way to spend a Monday evening in the run up to Christmas, than to sit down with a nice glass of shiraz, the heating cranked up to tropical proportions, and read James Crosby’s final report and recommendations on Mortgage Finance. 

The paper actually left me feeling somewhat upbeat about the current state of affairs.  Crosby in my mind, is sympathetic  towards  the Banks, their current pricing and cautious lending approach of late.  The report is quick to note that the situation in the US (which is primarily as a result of unprecented levels of bad debt) is different to that which we face in the UK money markets (a shortage of funding as a result of the US’s problems). 

It served to remind me that the majority of money being lent in the UK over the last few years was not from balance sheets (deposits and savings paid into a bank by diligent savers) but instead was being fed into the UK money markets for the most part by overseas investors who believed that lending their money against UK real estate was a good bet. These investors have got cold feet, and in turn the supply of money to lend has reduced significantly.

Lenders more cautious approaches (in particular the notably different pricing for higher loan to value lending) is in part due to the Basel II approach (which requires lenders to hold a certain amount capital for any money they lend – the higher the loan to value of the loan, the more money they need to have on deposit – bingo – the reason why lenders are focusing on lower loan to value business these days).

The good news to come out of the paper was his recommendation for the Government to issue around £100bn of mortgage guarantees. This would increase the capacity of money floating around and hopefully kick things back into action in the mortgage markets such as residential mortgages and Buy to Let mortgages. That said, there are several references to the unlikelihood of things returning to pre-credit crunch status in terms of pricing and lending policy any time soon.
  
The paper is fairly lengthy at 58 pages, and came across as very balanced and encouraging.  It makes an interesting read and is helpful in understanding the situation as it stands.  If you would like a copy of the 10 page summary,  I am happy to email it over – jenib@mortgagesforbusiness.co.uk.  Shiraz not supplied.