Mortgage market drying up, warn lenders

20 March 2008
More people could find themselves refused a mortgage unless the Bank of England takes action to help lenders find funding, experts have warned.

Despite reports that demand for mortgages remains strong, lenders say they simply are unable to meet demand using their existing funds. The problem lies in the credit markets, which have remained largely closed since the credit crunch hit the UK last autumn. The rate of interest that banks borrow money off each other - known as LIBOR - has also risen, meaning it is uneconomical for some banks to lend to consumers at the moment.

Figures from lenders, collected by the Council of Mortgage Lenders, reveal lending in February was just £24 billion, down 7% from £25.9 billion in January and 6% from February 2007.

Despite a rise in the number of remortgages, mortgages for new purchase are “subdued” according to the industry.

Michael Coogan, director general of the CML, said: “We have entered a substantially slower phase in the housing market and there will be ongoing problems in the mortgage funding markets unless the Bank of England makes new, broader based attempts to improve levels of liquidity in the UK.

“Demand for mortgages remains strong but cannot be fully met from existing funding. This has led many lenders to reduce their product ranges, increase their mortgage prices and, in some cases, to reduce their lending capacity.

“As credit conditions change markedly from day to day, lenders will continue to rapidly adapt their products and pricing to match. This is a vital response to the uncertain conditions.”

Mortgage broker John Charcol says with mortgage products literally disappearing from the shelves, borrowers should act quickly if they want to get a good deal.

Katie Tucker, technical manager at John Charcol, said: “Monday’s turmoil on the stockmarket, following a Budget with disappointing provision for home owners or first-time buyers, in a climate where precious few remaining lenders can accommodate high risk mortgages such as those with no deposit, bad credit, or new build properties, is a worry for many.”

Tucker says first-time buyers now have little choice but to save for a deposits of around 10%.

She added: “It is important that existing borrowers, who are due a remortgage, do not panic, but instead take a whole-of-market broker’s advice on what is now available to them, and absolutely prioritise monthly affordability of any new deal, to ensure they don’t fall into financial difficulties.”

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