UK mortgage lending stands for 86% of GDP

According to the annual world retail banking report from Cap Gemini, UK mortgage lending has "exceeded reasonable limits" and reached "unmanageable" amount. The volume of debt is running at 86pc of GDP – or about of £1,200 billion. 

The levels are to decline as a proportion of national economic output if banks are to make home loans profitable again. As GDP grows, 60pc should be a sustainable upper level, Andrew Sheehan, a management consultant at Cap Gemini reported. The report also says that situation with mortgage loans in USA is worse off: the value of mortgage debt is at 104pc of GDP.

Mortgages, in spite of the rise, still remain a "loss leader" for banks in many countries, including the UK, as competition caused net interest margins globally to decline from 1.33pc to 0.8pc between the years 2003 and 2007. Although margins are getting over, funding costs, greater default risks and tight regulation will restrict profitability in the years ahead, the report says.

Report also reveals the banks' plans, compiling the responses from 203 lenders of 26 countries, accounting for about 80pc of loans in their domestic markets. Report also says that, in order to make mortgage lending profitable, banks will have to "develop cross-selling capabilities over the next five years".