An emphasis on property lending

An emphasis on property lending
So far the analysis has focused on how pressure to deliver returns for one stakeholder, the
shareholder, has implications for other groups – customers and employees – through cross-selling
and cost reduction measures. A wider view of the business model impacts could also consider the
changes in lending practices where banks have failed to meet government expectations about
lending to business (especially SMEs) as a way of promoting business investment and growth.
Instead, UK retail banks have focused on property lending, with revenues from the mortgage market
exceeding £15bn in 2011, or more than 35% of total revenue. This is significantly higher than in
other European retail markets: Germany 15%; France 18%, Italy 9% and Spain 22% (The Treasury
Committee 2011). Figure 7 shows that banks were the key driver of the expansion of mortgage
lending: by the end of 2012, banks held 69% of balances outstanding, equivalent to almost a
doubling of assets to £873bn (from £468bn in 2002) within a decade. Growth in mortgage books is
partly a consequence of the simplicity of the lending decisions, in comparison with SME lending. The
introduction of centralised credit-scoring systems minimise the costs and expertise required for
mortgage approvals and this, in turn, has allowed mortgage approvals to be mechanised based on
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limited and easily obtainable information – the borrower’s income, credit history and the property’s
market value.
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