At the moment, while there is much discussion of the Greek crisis, it is having very little impact on the UK mortgage market. However there is an increasing urgency for undercapitalised European banks to be recapitalised by their own governments.
If Greece defaults, it is highly likely that this will spread to Italy, Spain and other countries, which in turn will impact on the banks in France, Germany and other traditionally sound economies.
This, in turn, is likely to lead to inter-bank lending drying up and it is this that is one of the biggest dangers to the UK. We will not have a mortgage market if the banks do not lend.
Three years ago, credit dried up because the banks could not borrow from each other; now we are in danger of having countries doing the very same thing.
What does this mean for us?
In the short term, the UK mortgage market seems to be experiencing something of an uptick in activity, as both August and September have been slightly higher than expected.
As a result of government support, UK banks are now better capitalised than they were before, so should be in a slightly better place to survive another downturn.
However, we are in the strange situation where it appears that the only way that a debt crisis can be solved is with more debt, which can surely only be a sticking plaster until people and countries start living within their means.
The longer-term solution is that both Europe and the UK mortgage market need a framework that has been stress tested to cope with the worst possible scenarios; one that caters for current market requirement, but at the same time is flexible and adaptable for whatever the future might bring.
Jon Round is chief executive of First Complete
