Too close to home
The collapse of a small mortgage lender, Victoria Mortgages, may seem neither here nor there in the scale of things.
The City watchdog, the Financial Services Authority, has tried to play down the significance of Victoria’s passing.
And in one sense, the FSA’s relaxed demeanour is reasonable.
Victoria was simply a vehicle for collecting mortgages from British housebuyers with less than perfect credit histories and then turning them into bonds for consumption by investors.
Last year it sold around £500m of mortgages. Even so, the only people who should be seriously inconvenienced or damaged by its demise are the 381 customers with current mortgage offers from Victoria that are yet to receive their money.
But what did for Victoria is a trend of wider significance – investors’ loss of appetite for this species of debt and the refusal of an unnamed bank to underwrite Victoria’s loan book pending any re-awakening of investors’ hunger.
Victoria is a microcosm of the wider credit squeeze, viz the reluctance of banks to lend to other financial institutions and the evaporation of demand for certain kinds of bonds and tradeable debt.
Here’s why Victoria’s demise matters: it operates in markets that directly affect you and me, in contrast to the special investment vehicles and hedge funds which have been the main British victims of the turmoil so far.
The Bank of England and the Financial Services Authority will be hoping that what has happened to Victoria is not the start of a trend. To state the obvious, they would be less relaxed if a larger household name mortgage bank were to have difficulty raising finance from banks or the money markets.