Mortgage Figures Paint A Shaky Foundation
The mortgage crisis has resulted in a drastic cut in mortgage deals as lenders try to safeguard their position and grapple to provide finance amidst a tight credit market and ask borrowers to either put up a bigger deposit or pay increased interest rates. As per information released by finance firm Moneyfacts, the number of mortgage deals has come down drastically to 5,785 currently from 15,599 in July of the previous year. Many building societies too are continuing with only standard variable loans and are also providing loans only to borrowers who live in the society's neighborhood. The number of premium residential mortgages have also come down from 3,803 deals in July 2007 to 2,540, which is a southward slide of 33%.
The Council of Mortgage Lenders [CML] stated that gross lending had come down to 24 billion pounds in February from 25.9 billion pounds in January, which was the lowest level since the past 2 years. In the month of June 2007, the amount was at 35 billion pounds and it has been a downhill slide since that month onwards. Micheal Coogan, the director general of CML said that as the property market had slowed down substantially, the Bank of England needed to play a proactive role if the problems afflicting the mortgage funding market were to be solved. He also said that the demand for mortgages had remained strong but could not be fulfilled through existing funding and that this had forced many lenders to either cut down on their product range or raise their interest rates or in some cases, even reduce the loan amount. New figures available to the Bank of England also show that most of the loans being taken out are re-mortgages. These low figures give an indication of the hardships faced by borrowers trying to get a loan or a re-mortgage. Even people trying to sell their homes have been cautioned to look at the current situation and expect around 10 to 15% lower rates as compared to the previous summer as per Henry Pryor of Primemove.com, a property website. He also said that many property buyers will realize that they cannot buy the property of their dreams since they might not get the mortgage approval from lenders at their rate and hence would be forced to walk away. Another expert warned that due to the market scenario, only one in three property owners could expect to sell their homes.
The Bank of England too has met the bosses of England's 5 largest banks to find out about the various problems plaguing the credit markets. But until it comes out with a long-term solution, lenders are changing their lending terms on a day-to-day basis as they try to adapt to the fast changing market conditions. Dunfermline Building Society too has just recently changed its mortgage terms and only Abbey is offering the 100% mortgage deal to borrowers. The CML has already predicted that there could be a “funding gap” of 30 billion pounds between the borrowers who are applying for mortgages and the actual money available to be loaned to them. All lenders have already stopped giving out 125% loans to borrowers. Some experts however feel that the market has not touched the bottom yet and it could be another 2 to 3 years before any recovery could take effect. According to the chief economist at Global Insight, Howard Archer, the February figures given by the CML already indicate that the housing market was already hit by tighter lending practices and limited funds and that too, before the recent increase in problems facing the credit market.
So, buyers, lenders and even current homeowners seem to be hoping that the Bank of England's meeting with the various banks heads would result in some firm action towards solving their woes and could again make money available to borrowers at reasonable rates and terms. Although, in the immediate term there does not seem to be any solution in sight except for a small cut in interest rates, which the Bank of England could make in the coming month or in May 2008.
Article written by: Craig Parker - Make Money Expert |
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