Broker UBS has 'buy' ratings on UK banking giants Lloyds (LON:LLOY) and RBS (LON:RBS) and says that declining house prices in the country should not lead to 'significant' challenges for the banks.
In a note, analyst at the research arm of UBS, Alastair Ryan highlighted that although there was much to worry about in the banking sector with its declining share prices, mortgages were not one of them.
He cited that UBS estimates showed that a 10 percent decline in house prices would only have a 9 percent impact on Lloyds earnings forecasts.
He highlighted a number of reasons to feel positive on mortgages, including that the mortgage books were seasoned with even risky loans made during a positive market have made more than 40 payments.
Also, the housing stock was fully occupied, driving rents up so it is now cheaper to buy than rent.
In addition, margins have widened sharply and credit performance in a combination of severe recession and 22 percent price declines had been what it called "robust".
"Based on our expectation that policy makers will shift their focus from the increasingly sterile ‘bank safety’ debate to a broader view of what benefits the economy, we see the UK banks as robust and well positioned to sharply raise payouts in 2012 and beyond," added the analyst in the note.