Mortgage market will not immediately benefit from rescue plan
June 2, 2008
According to a recent report the mortgage market in the UK will not immediately benefit from the £50 billion mortgage rescue plan that has been launched by the government, and industry officials have stated that it could in fact take quite some time for any positive effects to be seen. The recently launched mortgage rescue plan will enable lenders to swap mortgage based assets for government bonds, and the government hopes that this will increase confidence amongst lenders when it comes to inter-bank lending, and will in turn improve liquidity in the mortgage markets.
The mortgage lending sector has been suffering for some time, with lenders unable to secure finance to fund their mortgage lending operations. This has resulted in far tighter credit conditions being put in place, making it more difficult for consumers to get an affordable mortgage loan. It has also resulted in many mortgage products being taken off the market altogether, and higher interest rates. Many lenders have also started demanding higher deposits from borrowers, as well as increasing the arrangement fees on mortgages.
The Council of Mortgage Lenders recently stated: ‘In the short term the trend of increasing prices and products being removed from the market is not going to be reversed. As and when the banks start lending to each other, the rate for lending will go down and that means that that will start to bring the price down but it is not going to be a dramatic reversal. It is going to be a slow process at best.’
One Treasury official added: ‘We expect to see an impact but over time.’
Many officials have predicted that the remainder of this year is set to be a tough one for the mortgage and housing industry, and some have gone as far as to say that it could take years for the mortgage markets to settle back down following the devastating effects of the global credit crunch.
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