Situation with mortgages set to get tougher
In 2008 the UK went through a very turbulent financial period, and after ten years of relatively laid back and easy credit conditions many consumers felt the sharp shock of suddenly being unable to get their hands on affordable credit.
One of the areas to suffer most was the mortgage sector, with the number of mortgage deals on the market plunging and the number of borrowers able to get their hands on an affordable mortgage plummeting.
The effects of the global credit crunch and high interbank lending charged led to a logjam in the financial sector, and this meant that for many banks and lender mortgage lending had to be scaled back enormously. Also, many banks no wanted to take the risk of lending money to people that had less than perfect credit, which meant that many potential borrowers found themselves left out in the cold. The situation reached crisis point and the government had to intervene with a multi-billion pound rescue package, which it was hoped would make things easier in the year to come.
Sadly, however, industry officials are predicting that mortgage rationing is actually set to get worse over the coming year, and concerns about the state of the sector have led to the Prime Minister, Gordon Brown, making talk of ploughing billions of pounds more of taxpayers’ money into the banking industry. In the meantime, consumers continue to struggle to find low rate mortgage even though the base interest rate has fallen to its lowest level in the three hundred plus year history of the Bank of England.
In addition to struggling to find affordable mortgages, it is thought that borrowers will still be expected to pay increasingly high deposits to lenders, with many now demanding in excess of 25 percent of the property value and some demanding 40 percent or more, which is something that most first time buyers simply cannot afford to do. This means that whilst house prices are expected to keep falling the level of property sales may not improve because would be buyers may still be unable to get the mortgage that they need.
One industry official stated: “The number of deals available for those with a deposit of 25% or more continues to increase as the lenders are looking to cherry pick the best customers. Worries over falling house prices and the potential of customers getting into negative equity has caused the number of deals for customers with just a 10% deposit or less to fall to an all-time low.”
Recent reports show that at the beginning of last February there were over twelve hundred mortgages available for those with just a 5 percent deposit, but this figure has now plunged to just twenty one lenders. It is thought that over the course of this year an increasing number of lenders will raise their deposit requirements in order to minimise on risk during the recession as well as to shore up their finances, and this means that there could soon be even fewer 5 percent mortgage deals on offer to borrowers.
One broker said that those that only had a small deposit to put down, such as first time buyers, would find things were going to get tougher and tougher in terms of getting a mortgage. He said: “The spread between the interest rate you pay if you have a small or a big deposit has widened considerably. Someone with a small deposit has to pay a much bigger premium on their interest rate and they are also shut out from some of the most attractive deals, such as tracker deals.”
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Catch 22 really, banks aren’t lending, first time buyers are going to miss the boat because they can not raise enough capital to meet the lenders demands, the richer are only going to get richer as they take advantage of other peoples misfortune – and lending is only going to get tougher? The banks need to be regulated so the innocent and honest do not get dragged into such a mess that the banks created.