Opinion Former Article

Bank of England analysis on the price of lending - CML comment

The Council of Mortgage Lenders welcomes today's analysis by the Bank of England of the influences on the pricing of new lending. In contrast to some of the media coverage of it, the article itself clearly makes the point that the factors influencing pricing are many and complex - a point that the CML has been making consistently.

The Bank's analysis also explains that, while margins may indeed be higher on new business than they used to be in the past, there are valid reasons for this. Indeed, the Bank says that: "Lenders are seeking to rebuild net interest margins...in part through a higher mark-up on new lending. This is consistent with lenders rebuilding capital through retained earnings, an important part of the ongoing adjustment process for the UK banking sector and a factor that should ultimately lead to lower funding costs."

The analysis explains that new pricing reflects the need for lenders to take account of the low net interest margin caused by the ongoing low interest rate environment. With many existing mortgages on very low rates, and with new funding costs unable to match these, the other factors exerting pressure for higher pricing - such as higher funding costs and higher credit risk costs - are exacerbated.

CML chief economist Bob Pannell comments:

"The Bank sets out a clear explanation of the influences on the pricing of new lending. Two particularly striking observations leap out. First, the pricing of new secured lending is emphatically downwards, compared with the price of new unsecured lending which is emphatically upwards. Second, the fact that lenders are seeking higher returns on new business is a logical response - even a desirable one - that should help lenders rebuild capital, improve investors' perceptions, and ultimately bear down on funding costs over time."


1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK. There are 11.4 million mortgages in the UK, with loans worth over £1.2 trillion.

2. The Bank of England's article Understanding the price of new lending to households can be found within the Bank's Quarterly Bulletin on the Bank of England website.

Sue Anderson- 020 7438 8924
Bernard Clarke - 020 7438 8923
Jayne Chichester - 020 7438 8922

Sue Anderson- 07983 388755
Bernard Clarke - 07983 388672
Jayne Chichester - 07983 388764

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