Less banks, fewer mortgage and credit offers...more reason

Article source: Julia Finch - www.guardian.co.uk

Less banks, fewer mortgage and credit offers...more reason

There is an expected overhaul of the entire British banking system including the way savings and borrowing is being carried out due to current banking predicaments. The eventual result of this could mean fewer high street banks, fewer people working in the financial sector, more expensive current accounts and less choice.

Less competition is expected as most banks put morality before peril and the tellers will spend more time counting cash than selling investments.

A few months ago, there were five major banks and a range of mortgage and internet banks competing for savings and mortgage business on every high street; this will change as soon there will be a maximum of only four major banks.

A former bank director and pension’s consultant, Ros Altmann said there would be fewer banks in the future and not all banks can endure since some will definitely have to be taken over.

A number of brands will share ownership as they all try to rebuild their limits, resulting in more expensive accounts, maybe till new players emerge. Tesco, the giant food retailer, said it is preparing to enter the current account and mortgage lending market since it feels consumers trust its brand more than some of the legendary banking names.

The financial crisis will not bring back the type of banking where the bank manager knew customers by name; personal service is too expensive for mass market banking and therefore call centres are going nowhere.

We have been hit by prevalent change which is restricted mortgage availability, in terms the availability of funds and the eligibility of customers. One mortgage products on offer from the Northern Rock a year ago, offered customers 125 percent of the value of a house. This gave borrowers to ability to furnish their new home and take a little of their future house price rise upfront. Many of these borrows will now instead be hit with negative equity instead. Subsequently, the mortgage market has gone 25 years back to the days of no deposit, no mortgage!

Back in those days borrowers first had to become customers and have a record of saving with a lender before they could apply for a home loan. In due course a couple who had built a deposit could borrow up to 2.5 times their joint income.

Mortgage lending will never go back to the days where managers needing to know their potential borrowers personally; bad risks can be eliminated by refined credit scoring systems. However, mortgage lenders will reject more of those bad bets and want to see a sizable deposit.

Mortgages which claimed to be “self-certified” allowed borrowers to provide proof of income rather than an endorsement from an employer are nowadays rare and expensive making it harder for the self-employed to access the housing arena. Banks are becoming choosier on who gets a personal loan or credit card though that change will be accepted by those who had hard feelings about the constant stream of junk mail that we were so accustomed to.

An irrefutable case for far tougher policing is expected even if the Government backed recapitalisation programme is avoided.

The Financial Services Authority has put forward a proposal that it should have the opportunity of sending in independent appraiser to analyse the pay and bonus structures of bank executives to establish if they encourage too much risk taking.

Ros Altman also proposed extensive reforms to the city bonus culture. In elaboration, he said that short-term profit maximisation undermines long stability. For instance bank bonuses should only be drawn over a period of about 10 years and should be given up if the bank’s profits are not maintained.