The mortgage industry has faced some of its toughest times ever over recent months, with the global credit crunch having a profound adverse effect on the mortgage and finance industries in the UK since it swept across the nation last summer. Nine months on and the mortgage lending industry is still suffering hugely, with lenders finding it increasingly difficult and expensive to secure the finance that they need to fund their mortgage lending operations.

These difficulties have had a knock on effect for consumers, who have also found it increasingly difficult to find an affordable mortgage deal. Lenders have tightened up on their lending criteria enormously over recent months, making it increasingly difficult for consumers to get the mortgage that they need, which has in turn impacted on the housing market. In addition to tighter lending conditions lenders have also hiked up interest rates on many mortgage products, despite the three recent base rate cuts, increased mortgage arrangement fees, withdrawn many products from the market thus reducing choice for consumers, and are demanding higher deposits from borrowers.

The situation has reached the point where the government has had to intervene. Not only have billions of pounds been ploughed into the money markets, but the government has also launched a £50 billion mortgage reduce plan, which will enable lenders to swap mortgage assets for government bonds, with the aim being to increase confidence amongst banks in order to increase liquidity in the mortgage markets. However, whilst the plan has been welcomed by industry officials it is likely to take some time to have a positive effect.

In fact, officials from the Building Societies Association have predicted that it could take two years or longer for the mortgage markets to settle back down even with the mortgage rescue plan in place. One senior official from the BSA said that even after the mortgage markets have settled back down the situation will be a very different one compared to what it has been over recent years. He did add that building societies had not suffered to the same extent as banks and larger lenders. He said: “Clearly we entered troubled waters in a fundamentally sound vessel. Societies generally are well capitalised, highly liquid and prudent businesses.”

With regards to the Bank of England mortgage rescue plan he added: “It will not in itself solve the credit crisis, it certainly isn’t going to reverse all the changes in lending policies we have seen in recent months, or restore mortgage lending to its former levels, but it should help to underpin confidence. It is vital for the Bank of England to remain very close to what is happening in markets, and it should not hesitate to intervene further and extend the facility if that is what is needed.”

He also said that whilst building societies were not as troubled as larger banks they were not immune to the effects of the global credit crunch, and would need to adapt to cope with the effects in order to minimise problems.

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