Banking reform: Why a soveriegn debt crisis should worry mortgage borrowers more

12th September 2011

John Charcol's Ray Boulger has posted a blog dismissing the impact of the Vickers Report on affordability of mortgages.

He thinks its impossible to separate out realistically the extra costs banks will incur from complying with Basel 3 from those incurred as a result of Vickers, "Together with other factors influencing pricing over the next 8 years. Vickers will be just one part of the mix, albeit an important one"

Boulger reckons that in the short term – for the next five years at least the Eurozone sovereign debt crisis is much more relevant to the banking sector, and hence mortgages.

"Despite record low gilt yields allowing UK borrowers to benefit from record low fixed rate mortgages, the main worry now is just how bad the banking crisis resulting from the impending Eurozone Sovereign debt default will be."

"It is a question of when will it happen and how big will the haircuts be. More worrying is the increased pressure on Italian and Spanish debt. Italy today had to concede a yield of 4.15% on the sale of 12 month bills, compared to "only" 2.96% at the last sale a month ago.

Boulger believes the crisis will in turn result in a crisis of confidence in banks across Europe and therefore make borrowing more expensive.

"In the short term the impact of the Eurozone Sovereign debt crisis will be much more relevant than Vickers to the availability and pricing of UK mortgages."

More:

Shaun Richards, Mindful Money's resident economist blogger writes about the continuing Greek debt crisis and how Greece is now looking seriously in danger of defaulting: "One rather chilling number is that the yield on a one-year Greek government bond has gone above 100% to stand at 106%. As it surged in recent times through the 70s,80s and 90s I had wondered when it would do so and how soon it would be…

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