Disappearing Mortgages
The credit crunch is having a deep effect on the UK mortgage market. The first half of 2007 saw property prices unexpectedly rising to levels never seen before, and despite interest rate rises at the back end of 2006 and in January 2007, to reach 5.25%, the mortgage market was buoyant. The property boom seemed set to continue, taking the mortgage market with it.
Then came the sub-prime crisis in the US, and on its heels came the credit crunch - still with us now - and lenders were left frightened of taking on any more risks. The problems were brought into stark focus when Northern Rock had to go the the Bank of England to ask for funding to prop up the cashflow for its operations, as it relied heavily on the money markets for its cash and the source dried up. Northern Rock's share price crashed and it still awaits a firm suitor to rescue it.
The credit crunch continues to bite. Mortgage lenders are making it more difficult for would-be borrowers to borrow money for their homes. Mortgage interest rates are going up, despite the Bank of Englnad base rate having stayed at 5.75% since July, and mortgage providers are withdrawing products at an unprecedented rate. The number of home loans pulled from the market has been around 40% in just the last three months. Nothing like it has ever been seen before. Over 6,400 mortgage products have gone.
Not surprisingly, the sub-prime market has seen the biggest cuts, but it's by no means alone. Sub-prime residential mortgages have lost 991 of 1,383 products available in July - that's a reduction of 72%. Sub-prime buy-to-let mortgages have been reduced to 3,777 from 8,148 - a reduction of 54%. Prime residential mortgages have fared better; the 2,265 products available in July have been cut by 438 products - a loss of 20%. Finally, prime buy-to-let mortgages have gone down from 3,803 to 3,192 - a reduction of 16%. Overall, therefore, there were 15,599 mortgage products in July, and now there are 9,188 - a reduction of 41%. The sub-prime market has all but collapsed.
Again, not surprisingly, the axe has been wielded most at Northern Rock. Their previous 230 products have been whittled down to a mere 70. Nationwide's takeover of Portman Building Society also accounted for several.
Hindsight is a wonderful thing and it has been easy since the sub-prime crisis hit for the Prime Minister and the Chancellor of the Exchequer to tell the banks that they should act more responsibly. They were awfully quiet when the banks were raking in money, keeping their profits high, keeping the mortgage market and housing market buoyant, helping the UK economy and, oh yes, swelling the Treasury's coffers.
There is little doubt that some of the banks were all too eager to lend money to people who would struggle to keep up with repayments "if something happened". Well, something did happen: the base rate went up, and mortgage rates were quick to follow.
Now lenders are being more careful, and of course people who want mortgages are the ones who are suffering. The pain now may have longer-term benefits. More caution by mortgage lenders should lead to increased long-term stability in the housing market, but the exciting days of 10+% house price increases are over for now.
Published on October 22, 2007
Digg | 
del.icio.us | 
StumbleUpon | 
Reddit | 
Yahoo! | 
My favourites
Latest Mortgage Articles
Darling's Budget Report Highlights
Chancellor Alistair Darling delivers his first Budget Report yesterday. Highlighted in this article are some of the main points... Read More
March 13, 2008
Lending Falls Again Says CML
The amounts borrowed by first-time buyers and home movers continue to drop as the credit crunch takes further grip on the UK mortgage market. Remortgage activity is on the increase as many switch from fixed-rate deals to tracker mortgages in anticipation of further base rate decreases from the Bank of England... Read More
March 12, 2008
Interest Rates Kept At 5.25%
Yesterday, 6th March, the MPC decided to keep the base rate at 5.25 per cent. This decision was to be expected as the Bank focuses on the pressures of rising inflation and a slowing economy. Analysts are predicting another cut to 5 per cent to happen in May unless economic conditions weaken substantially. Whilst some feel the MPC shouldn't wait too long before the next cut, many agree with yesterday's decision... Read More
March 7, 2008
20 Per Cent Of Homeowners Fear Repayments
The UK's financial watchdog, the FSA, published a survey of over 500 mortgage holders which revealed 1 in 5 are worried about being unable to keep up with their mortgage repayments. It is estimated that 1.4 million fixed-rate or discount deals will expire this year raising monthly repayment amounts. Twenty five per cent of those surveyed admitted they had no contingency plans to meet these costs... Read More
March 6, 2008
Mortgage Criteria Becoming More Difficult
Mortgage borrowers are once again being hit with more criteria from lenders as the credit crunch becomes solidified in 2008. Not only have 100% and 125% mortgages been pulled from the shelf, now many lenders require a minimum of 10 per cent deposit in order to qualify for credit. It is now highly recommended to save as much as possible for your deposit and improve your credit history before applying... Read More
March 3, 2008
Refer a Friend
Why not tell a friend about Money Outlet? Click here
