Thursday, 14 February 2008

Bradford & Bingley Reveals Trouble Ahead

Bradford and Bingley yesterday revealed a halving of profits as a result of failed investments in the U.S sub-prime housing market, and a surge in mortgage arrears with its UK borrowers to 40%. The declaration has caused some commentators to accuse B&B's management of a lack of 'credibility', and caused a meltdown in the value of B&B's shares (which lost a quarter of their value in a single day), and casts doubt on claims that the UK's lenders have been more responsible than their US counterparts.

The backdrop to the announcement from B&B is a combination of rising respossessions and falling property values, with the ratio of secured debt repayments to income at its highest level since the housing market crash in the early 1990's. In addition, the credit crunch is now starting to have an impact on businesses and employment. Although yesterday's figures revealed that unemployment continues to fall, business optimism is on the floor with an increasing number of employers forecasting that they will be laying workers off at some point in the next 12 months.

Despite these warning signs, the UK has not started to consider the types of support packages that will be required to protect consumers from the impact of a sharp downturn in the housing market.

In the US, steps have now been taken by lenders to restrict mortgage foreclosure actions and commitments given to take additional steps to help borrowers in difficulty as a means of preventing a flood of respossessed properties from further depressing house prices. As yet, no such discussion has been initiated by lenders in the UK. Neither has Government considered how it can improve assistance to borrowers that fall into arrears - for example by increasing the level of mortgage assistance available to the newly unemployed.

In the light of the Bradford and Bingley announcement, Debt on our Doorstep calls for a tri-partite forum involving lenders, Government, and consumer agencies to be convened as a matter of urgency to develop a package of support measures and improved protocols for dealing with consumers in arrears and to make recommendations to improve responsibility in lending.

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