by Mark Johnston
Fears are growing of a second credit crunch which may push the UK mortgage market over the edge. The Bank of England are predicting that the number of available loans will plunge over the next few months which will create a second mortgage drought.
Banks and building societies may have to slash their current offerings and some may have to pull out of the mortgage market altogether. Fear is growing in the financial industry that banks and building societies will not be able to raise the money that they need in order to lend to homebuyers as they will n ot lend to each other. This lack of wholesale lending is what fuelled the first credit crunch and what way well be the catelyist for another.
First time buyers and home movers are already finding it difficult to find a good deal whilst other cant even get accepted on mortgages that have high rates of interest. Taxpayers are already angry that publically owned or part owned banks like the Halifax and Royal Bank of Scotland (RBS) are not making credit available or find that their rates are still too high.
The mortgage market is still struggling to recover and any further damage might deepen the problems. The Council of mortgage Lenders has repeatedly warned of its fears that the mortgage market is on the edge of a precipice. Mortgage availability is still very tight and obtaining future credit is looking to be a lot more expensive. Those groups finding it hard to find a mortgage now may find it impossible in the future. The Bank of England’s report is warning that wholesale funding of the mortgage market might tighten sending it into another downhill spiral.
According to the bank of England their were just less than 50,000 new mortgages last month were there was more than 100,000 a month before the credit crunch hit us. Many borrowers are sticking to their low variable rates instead of looking for a new fixed rate mortgage, whilst others are scared of taking on any extra financial burden as they are unsure of their job security or are fearful of base rate rises.
The financial services industry offered more than 12,000 mortgage products before the credit crunch, which has shrank down to just 2,600 today. Lenders are also asking for much more security, back in 2007 a first time buyer only needed a 10% deposit whilst today’s average is 25%.
The Bank of England’s biggest worry is that some of the schemes that were set up to pump more credit into the system are due to end. One of these schemes, the special liquidity scheme which is pumping £185billion into the system is set to end in a years time. The scheme currently allows lenders to swap assets that are difficult to trade such as the sub prime mortgage debt that triggered the credit crunch in the first instance. This, alongside other schemes ending may push the market into a freefall. Mortgagerates.org.uk are concerned that this may result in lenders pulling back their mortgage offerings, rates increasing to account for the increased cost of wholesale borrowing and deposit requirements increasing to minimise risk to lenders.
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