Banco Santander and Banco Sabadell will not only have to deal with the collapse of new mortgage production in Spain, but they will also have to deal with a mortgage crisis in the UK. The Bank of England surprised at its monthly meeting in June and raised interest rates by half a point to 5%. However, the body led by Andrew John Bailey, has recognized that interest rates must rise two additional points, to 7%, to cope with inflation.
Immediately, real estate experts warned that raising interest rates would trigger an “endgame” for the housing market and could send prices plummeting. At the beginning of the year, it was estimated that house prices in the United Kingdom could fall between 10% and 15% and would admit to the overheating of the sector. Now, with the new estimates, he already believes that the collapse would be between
As a consequence, the new real estate loan business would be affected, impacting the subsidiaries of Banco Sabadell, TSB, and Santander, Santander UK, whose activity is carried out in the mortgage market. Sabadell, with more than 90% in mortgages, and Santander with 300,000 million in assets. Thus, the bank headed by César González-Bueno has acknowledged to analysts that the fall in demand for the new one is intensifying in the second quarter and that it could present figures similar to those experienced in the first of this year.
In the first three months of the year, the new mortgage production of Sabadell’s British subsidiary interrupted a 50% decline compared to the last quarter, while the year-on-year drop reached 44%. Thus, in the first three months of the year it closed with a volume of 957 million euros, 1,000 million less than at the end of December (and 1,715 million euros at the end of the first three months of 2022).
And this drop in demand for credit occurs at a time when TSB’s profit had grown to 54 million, which was the highest quarterly result since 2017 and after González-Bueno ruled out its sale. The entity acquired TSB in 2015 for 2,300 million euros.
Banco Santander is the other Spanish entity with a presence in the United Kingdom. In this case, the analysts have recognized that they have not yet held a meeting with the bank, but that the mortgage business could also be affected. In fact, in the first three months of the year, loans and advances to customers fell by 4%. In gross terms, without ATA and at constant exchange rates, they remained flat compared to last year. The bank chaired by Ana Botín explained that “this is due to the high level of production during 2022, which has been limited in the first quarter of 2023 as a result of margin management in an environment of rising interest rates and high inflation “.
Authorities ask to remain calm
There is no clear opinion on what awaits the UK mortgage market in the coming months. Some consulted institutions ruled out serious problems despite the fact that interest rates rose to 7%, a figure that could be faced by the middle class. Yes, it could be the case that these increases would force the fairest mortgagees to put their homes on the market in the event of not being able to meet the payments, but a situation like the one experienced in the eighties would be ruled out.
Still, banks have repeatedly withdrawn their mortgage offers from the market suddenly and then raised prices, especially since May. This is the case of HSBC, but also of Santander UK. HSBC, for its part, has raised the costs of its loans twice in a single week, and others have followed suit.
