Why are UK banks so risk averse at the moment?

As we see signs that the UK mortgage market is improving, albeit at a very slow rate, there are concerns about the future trend of mortgage liquidity. On one hand we have the UK government pushing the UK banking sector to increase mortgage liquidity while on the other hand we have them being penalised if they take too many risks. The UK government has effectively caught the UK banking sector in a pincer movement!

Until we see a strong recovery in the UK property market it is unlikely we will see a massive injection of mortgage liquidity in the short to medium term. Despite the introduction of some competitive rates over the last few weeks, ultimately a number of would-be property buyers are still effectively barred from the market at this moment in time. The reality is that first-time buyers are the life blood of the UK property market and without them it is difficult to see how we could push ahead with a strong recovery in the sector.

There is no doubt that the markets will level off, consolidate and then move ahead in due course but when this will happen is open to debate because there are very mixed feelings regarding the prospects for 2010.