UK banks benefit from housing upturn as corporate lending remains weak

Citi Research has released a report concluding that there is an increasing upside to UK banks. Analysts cite several positive indicators leading to a positive assessment of the sector.

There was a significant increase in mortgage volumes in July and August, with gross mortgage lending for the eight months to August 2013 amounting to £99bn, an increase of 15 per cent as compared to the same period in 2012. Credit card volumes have also seen a modest year on year increase.

The positive trends in the UK housing market have also been a plus for the banking sector. UK house prices have risen between five and seven per cent year on year, confidence is up and more mortgages are being approved. The proportion of outstanding mortgage balances on fixed rates has dropped from 61 per cent in June 2007 to 28 per cent in in March 2013.
The improved secured assest quality trends, combined with declining mortgage arrears and possessions are also cause for optimism. Credit card write-offs have also continued to decline with liability spreads showing signs of stabilisation.
Despite these positive trends, corporate loan volumes continue to be weak. Citi attributes some of this to a decline in construction and real estate lending.
The report "UK Banks-Understanding The Upside" demonstrates the link between an improving economy and bank profitability and they see more upside to UK banks than downside. Banks they rate as particularly favourable include Barclays, HSBC and Standard Chartered.