UK housing lenders shut the door too late

The UK has a proverb about how stable doors only get shut after the horse has run away. We can see this happening in the UK housing market.
The main regulator (the FSA) failed to spot the Northern Rock problem before it led to the UK’s first bank run in 140 years. Only now has it woken up, telling mortgage lenders yesterday to expect ‘market conditions to remain very difficult for a sustained period’.
It also warned that 1.4m UK borrowers face higher interest charges next year ‘which may prove too much for many of them to afford’. In other words, only now has the FSA realised that the US subprime disaster may be just about to hit the UK market, where house prices are even higher as a multiple of earnings. Apparently, they are already having to pay ‘weekly visits’ to some lenders where ‘liquidity levels’ seem too low.
The only problem with this warning is that it comes far too late. The time to stop the unsafe lending practices was when they started. Already the main UK lender (Halifax) has announced a 1.1% fall in UK house prices last month. This makes 3 months in a row that prices have fallen – and one has to go back to 1995 (when the UK was emerging from the last housing crash) for the last time this happened.
The European chemical industry will be badly hit if the UK follows the US housing decline. UK housing has been a major source of demand. And indirect demand will also decline, as UK homeowners will no longer be able to borrow against the rising value of their homes, in order to purchase autos and other consumer goods.
The risk of a global downturn is clearly increasing, as the credit crunch intensifies.

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