UK Mortgage Problems Could Be Bad News for the Pound

Last week, I indicated that the British pound could break 2.0 against the dollar if disaster hits UK mortgage lenders. The currency is now trading below 2.0 against the dollar, but thankfully there has been no disaster.

However, trouble is still brewing for mortgage lenders or banks that have mortgage lending divisions and things are only expected to get worse:

1. First Direct, which is apart of HSBC announced yesterday that it will be withdrawing all of the mortgages to any homeowners who are not existing customers.

2. Standard & Poor’s is also reporting that Lehman Brother’s has stopped writing mortgages to two of its UK units.

3. Halifax, the UK’s biggest mortgage lender is expected to follow suit within days.

Being forced to turn away business because you have too many customers should be perceived as a good thing, but unfortunately in the world of mortgage lending in UK, the only reason why First Direct and Halifax are being flooded with new applications is because other lenders like Nationwide have taken measures to increase the interest rate on loans or withdraw their mortgage lending products completely. If everyone stops providing new mortgages, it could cause the entire UK housing market to freeze up which would be very negative for the British pound.