Mortgage lending remains strained state officials

July 21, 2008

Last summer mortgage lending levels peaked, but late last summer the global credit crunch made its way across the Atlantic to the UK, and this changed the whole face of mortgage lending. Banks suddenly found it harder and more expensive to secure finance to fund their mortgage lending, and this has resulted in many changes. The number of mortgage products on the market has fallen by two thirds, interest rates have gone up, higher deposits are being demanded from lenders, and arrangement fees have rocketed.

The lack of funding has also resulted in far tighter lending criteria, so many people are now unable to get a mortgage because they no longer fit the criteria. In order to increase liquidity in the mortgage market the Bank of England has injected billions of pounds into the money markets, and has launched a £50 billion mortgage rescue plan. Officials hoped that this mortgage rescue plan, which allows lenders to swap mortgage based assets for government bonds, would increase confidence and liquidity in the markets.

However, officials from the Council of Mortgage Lenders claim that the plan has yet to take effect, and that the problems in the mortgage market have not started to ease as yet. One official said: “The next few months will remain very weak for house purchase activity for the funding reasons which are now well rehearsed. We still await first signs of the Bank of England’s special liquidity scheme indirectly helping to ease the current logjam.”

The housing sector has also been severely affected, with house prices having fallen for a number of months. However, despite falling house prices properties are not selling well because the lack of mortgages is making it difficult for people to get a mortgage and buy a property, and affordability levels are very low.

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