UK first-time house buyer numbers have hit their highest since 2002, according to a new study by Yorkshire Building Society, and this could have positive implications of the nation banks.
UK banks, such as Barclays (BARC), Lloyds (LLOY), HSBC (HSBA), and NatWest (NWB) - whose shares all rallied on Tuesday 5 January - could benefit in two ways from the surge in first-time buyer lending demand.
First, from a top line perspective their profitability will be boosted as they sell an increased number of mortgages.
Second, given the recent rise in UK interest rates from a historic low of 0.1% to 0.25%, consumers who have a variable rate mortgage will face increased monthly payments, to reflect the increase in the base rate. On a tracker currently costing 2.1%, the interest rate will rise to 2.25%.
RATES ON THE RISE
Most borrowers are on fixed-rate mortgages and will not be immediately impacted by changes in interest rates, but banks have already started to increase mortgage lending rates. This will enhance the margin and profitability on sales of mortgage products.
Lloyds is the largest player in the UK mortgage market and is likely to be one of the key beneficiaries from a sharp increase in demand.
The consumer prices index (CPI), rose by 5.1% in the 12 months to November 2021. This is the highest CPI 12 month inflation rate since September 2011, when it stood at 5.2%. Given this, we may see the UK banks benefit from further rises in interest rates during 2022.
