Goldman Sachs says cantonment regulations imposed after the 2008 global financial crisis are pushing up house prices in England by promoting business practices that have resulted in very low interest rates for homebuyers able to make significant installments, the Daily Mail reported on Saturday (Aug. 7).

Compartmentalization is the practice of segregating the business activities within a company so that problems in one area cannot spill over into other areas. These areas can be industries, geographies, or a combination of both. In the UK claim at issue, the cantonment required after the 2008 global financial crisis prevented large investment banks from deploying some of the capital they had amassed in traditional investment banking transactions. They are, however, allowed to use the deposits to take out mortgages – and have done so at a rate fast enough to lower rates and even push some traditional lenders out of the mortgage market.

Bankers argue that potential new buyers are kicked out of the market by giving existing owners who have built up equity the power to drive up prices.

For the most part, the loans in question offer fixed rates between two and five years and variable rates thereafter.

A lender quoted by the Daily Mail, Halifax, is about to start offering 0.83% fixed rate loans for the first two years to borrowers who put 40% down. Another lender, according to the newspaper, will offer mortgages with rates set for five years at 0.99%.

The Daily Mail quoted UK mortgage expert Ray Boulger as saying the five-year rate below 1% is the first he has ever seen.

“This is another regulatory intervention that generates cheap money, and it makes it even more difficult for first-time buyers to climb the ladder,” an anonymous banker told the Daily Mail.

See also: Better to buy digital mortgage platform UK FinTech Trussle

The newspaper said the downward pressure on rates caused lenders Sainsbury’s Bank and Tesco Bank to exit the mortgage market. Anticipating the effect on bank profitability, senior analysts at Goldman Sachs lowered stock price forecasts for Barclays, Lloyds, NatWest and Virgin Money, the newspaper reported.

Cantonment has become particularly important in recent times as clients have deposited hundreds of billions of dollars into UK accounts since the start of 2020, according to Goldman Sachs data cited by the Daily Mail; at the same time, loans only increased by 25 percent of that figure.

“This has resulted in a substantial increase in excess deposits trapped in the barriers of the big banks,” said a Goldman report quoted by the Daily Mail. “In our opinion, this is the main reason for the fall in mortgage prices. The price drop happened faster than expected.

A lender, Fleet Mortgages, based in Hampshire, UK, announced in July that it was being acquired in part to gain access to a stack of deposits that the buyer, Starling Bank of London, had amassed over the two last years.

Read more: Starling Bank buys fleet mortgages in $ 69.1 million deal



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