British Pound Could Fall Further if Disaster Hits UK Mortgage Lenders

According to an article in the UK Times, Nationwide, the country’s second largest mortgage lender is planning to turn away business.

We wonder why a mortgage lender would resort to this unless trouble was brewing in house. The Times argues that Nationwide is attempting to gain greater control over the amount that it lends and is doing so by increasing the rates on its tracker deals by more than 50bp. Efforts such as these are exactly why central banks including the UK and the US are struggling to contain the credit crisis. Despite interest rate cuts and liquidity injections, banks and mortgage lenders have reluctantly offered new loans while scrutiny has increased for potential borrowers, making it difficult for everyone. The liquidity crisis has hit the UK and US housing markets in more ways than one. If a mortgage lender announces major losses or even worse, is forced to fold shop, the British pound could easily slip. The news from Nationwide completely erased the British pound’s earlier gains which were driven by stronger economic data. The CBI retail sales survey rebounded this month, while fourth quarter total business investment beat expectations. More UK numbers are due for release today with Nationwide house prices, current account for the fourth quarter and the final Q4 GDP numbers due for release. Expect decent volatility in the British pound.