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Why do foreign lenders fail in the UK mortgage market?

by: Richard Sexton
  • 05/02/2013
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Why do foreign lenders fail in the UK mortgage market?
We're constantly told that the world is getting smaller. So why is it that when potential borrowers have a clear demand for access to finance, there is relatively little direct offshore involvement in the UK mortgage market?

One answer is that our wider economic difficulties dampen the appetite of the money players to invest. Despite low actual figures, potential lenders perceive more borrower default risk in the UK.

Why make a bet on us when the booming Far East beckons at the same time? Unexciting house prices growth also deters, but remember lenders don’t directly benefit from any uplift in prices – they just potentially get burnt when there is a downside.

In previous cycles, it has been our American cousins who have led the charge to join the UK market. I have to say that I don’t think their past efforts can be described as an unqualified success.

I’m long enough in the tooth to remember the last two waves of American backed lenders – both arriving at what turned out to be peaks in the market which were swiftly followed by crashes which wiped them out.

Probably the highest profile casualty this time round was GMAC-RFC – a name virtually unknown to the UK public which at one point was nevertheless in the top 10 for new lending volumes, before spectacularly imploding when the securitisation market they depended on disappeared. Every other American backed lender suffered a similar fate.

The Yanks did also try and import some strange ideas – I recall a transatlantic phone call where the UK Director of mortgages for a lender pleaded for me to explain to his American boss why having land added value to a property in the UK rather than removed it.

The American’s view was that due to the litigation culture in the good ‘ole USA, owning land in some circumstances set you up for any number of claims for people injuring themselves or otherwise having their lives impaired by its existence – weird in the extreme.

More positively, the largest offshore player in recent times has been Dutch owned ING Direct. This lender brought genuine innovation to the market and it has been my privilege to work with them since its launch, right up until its forthcoming, disappointing exit.

Whether a consequence of some wider Dutch approach to life or the clearly switched on management team, the ING culture was always very much one of ‘can do’ and you’d find it hard to find a more professional and genuinely warm team of individuals to work with.

Leaving aside home grown multinationals, ING’s exit leaves some smaller participants to fly the offshore flag – Bank of China, Bank of East Asia and State Bank of India all currently have finger holds in the UK mortgage market, but you have to think that given the size and strength of the parent economies these organisations could have a huge impact should they decide to do so.

What’s interesting is that future new lenders look just as likely if not more so to originate from the East rather than from the West – perhaps a symptom of the wider reorganisation of economic influence that will impact all our lives in the next 10 years.

On past performance, if you do see Uncle Sam hove into view in a meaningful way, it might be a sign to get out of mortgages for a few years.

Richard Sexton is director of business development at e.surv

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