CITY AND SUBURBAN
When the Barchester Building Society faces the West Indies
FILD ES CHRISTOPHER
Iwonder who will be first to go bust, lending money on mortgages. They have the look of an accident waiting to happen. What was the sleepy preserve of the building societies is now a market where new players with deep pockets arrive every week. Behind the Big Four banks come the other retail banks (Giro, Yorkshire, TSB), the merchant banks (Hambros is now the biggest house-agent), the insurance com- panies led by the Prudential, the institu- tional investors backing National Mort- gage, the American banks, and, latest, Salomon Brothers, with the Mortgage Cor- poration. Salomon is the biggest and most Professional money-market operation in the world, and putting the Barchester Building Society in against Salomon is like selecting me to play the West Indies. Someone is going to get hurt. The invaders have driven down the margins between borrowing and lending rates. They are coming into a market where, between 1982 and 1985, the building societies found that the proportion of their loans which were seriously in arrears almost doubled, and the proportion of foreclosure more than doubled. Houses have certainly proved a good investment in the sense that their Prices have risen faster than incomes — but that leaves buyers, and especially new buyers, having to pledge more of their income and capital in order to get into the game. These over-committed borrowers alarm Barclays, which as a building society would be among the top ten. General manager Seymour Fortescue says: 'We intend to compete on price, but not on terms.' Lenders and borrowers alike can no longer count on general inflation to vv. ash them off the rocks. Can they count on being prices? Are those prices simply u.eing puffed up by new lenders? The most ce.ceptive security (so I once heard Lord Richardson, Governor of the Bank of E. ngland, say) is, like commercial property in the early 1970s and oil in the early 1980s, the market which no one believes will ever go down.
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