Mortgage Lending

by Mark Johnston

Rigorous mortgage rationing by banks and building societies alike has been in force in the UK since 2007 and the onset of the international banking crisis.

The banking crisis not only dried up funds available to borrowers but also the supply of funds to lenders.

Many reports have shown that so far there has been little sign of any relaxation in this strict mortgage rationing.

Nicholas Leeming, business development director at said “inflation is beginning to fall so there will be less pressure on the Bank of England t boost interest rates and this will help keep mortgages low and affordable”.

It is believed that this stringency has ‘put off’ many potential house buyers from even applying for a mortgage. It has also been a major factor in many first time buyers being ‘frozen out’ of the property market, mostly as they have been unable to raise the large deposits that lenders now require from them.

In November 2011 there were only 52,854 mortgage loans agreed in principle for home buyers, although this was 12% higher than in November 2010, these figures have barely changed in 4 months.

It appears that on whole mortgage approvals are still less than half the level recorded in run up to the banking crisis.

Many lenders have stated that they expect the proportion of total loan applications being approved to fall over the coming months.

Data has shown that problems due to the euro zone crisis started to affect the UK market in the second half of 2011.

Mortgage pricing also started to rise in the autumn following a rate war between lenders around the middle of the 2011.

The bank of England’s quarterly survey of lending activity has suggested that home buyers will find it even harder to obtain a mortgage in the coming months.

The bank reported factors such as the cost and availability of funds and also the economic outlook are all expected to pull down on credit availability.

Lenders are worried about the poor economy, the euro zone crisis and falling house prices and therefore borrowers should expect to see even tighter credit scoring criteria.

Many experts believe lenders will be even stricter about who they lend to and are likely to exercise more caution when it comes to lending money.

Paul Smee, director general of the Council of Mortgage Lenders says, “lenders face challenging conditions in the wholesale funding market and this could have negative effects on the cost and availability of UK residential mortgages through some or all of 2012”.

It seems that the fate of the UK mortgage market will largely be determined by how European ministers deal with the sovereign debt crisis.

Ray Boulger, senior technical manager at John Charcol, said that the mortgage market is “likely to suffer some short term pain throughout 2012 as the crisis unfolds, things are likely to get worse before they get better”.

David Braithwaite, director of Citrus financial management believes that “2012 will be about matching willing borrowers with reluctant lenders. At best we will be moving sideways”.

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