The spread between the “front book” and the “back book” has shrunk in the past 18 months as banks discounted to win new customers and retain existing ones amid a wave of refinancing of cheap, fixed-rate mortgages written during the pandemic.
He says this focus on the cost of equity capital was a red herring. What’s changed is the cost of funding. The banks get to protect their margins, but the funding advantage they had over non-bank lenders will be diminished.
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