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Alongside the news that the number of UK mortgage approvals has risen for the third month in a row, HSBC shareholders have backed a cash call from the bank, despite the problems faced by other banks with recent rights issues. While doom and gloom still shrouds the city, these could be early signs that renewed confidence among investors is starting to infiltrate the markets.
The British Bankers' Association (BBA) has announced that 28,179 mortgages were approved for house purchases during February 2009, representing a considerable increase on the 24,278 registered in January. Although, the figure still represents a 31% fall compared to February 2008, gross lending by the major banks rose to GBP3.9 billion in February, up 9.8% from a year earlier. Meanwhile, at its annual general meeting, 99% of HSBC shareholders voted in favor of a rights issue of GBP12.5 billion.
“Whisper it quietly, but two pieces of 'good news' emerging in quick succession represents something of a turnaround from the picture of economic doom and gloom in recent months”, says Roderick Logan, financial services analyst at Datamonitor. Logan explains: “Firstly, the increase in mortgage approvals follows on from an increase in buyer enquiries, which suggests that, on the demand side, potential buyers are no longer prepared to wait, and feel that house prices may not have much further to fall.”
Also, many consumers have responded to low savings rates by removing their money from savings accounts and may subsequently have decided to use them for a deposit on a house. On the supply side, although lending criteria remain tight there are still good offers for those who are able to able to stump up a deposit of around 25%. Nevertheless, it is worth noting that the number of mortgage approvals remains close to historically low levels and that it is too early to say whether this is a positive trend or purely a blip.
“Secondly, the approval by the vast majority of HSBC shareholders of the GBP12.5 billion cash call suggests that investors have not lost total faith in the beleaguered banking system.” HSBC has prided itself on a policy of transparency during the crisis, and was ready to admit it had made a mistake in purchasing HFC, a key player in the US sub-prime loan market. Its apparent willingness to admit to its shortcomings may have helped the bank to maintain some credibility with shareholders.
Logan warns: “Although the two stories do not herald the end of the economic turmoil, they do offer a small ray of sunshine in these dark times. The road ahead may still bring more unpleasant surprises.”
