When will the mortgage market get back to normal?
The UK’s mortgage market has been going through chaos over recent months, mostly due to the effects of the global credit crunch, which took hold of the financial markets in the UK last summer. Since this time the mortgage sector has been plunged into a myriad of problems, and lender, consumers, and various other related industries have all suffered as a result of this. Many are now concerned that it could take a long time for the mortgage sector to get back on track.
Since the global credit crunch squeezed the life out of the financial markets, mortgage lending has gone through a number of major changes. In the past consumers have been used to the days of easy credit, high income multiples, and mortgages for the full value of – or more than the value of – the property being purchased. However, this is no longer the case and mortgage lending has been severely restricted in the number of ways, as lenders try to weather the effects of the credit crunch.
Mortgage lenders have found that getting finance to fund their mortgage lending operations has become extremely expensive and difficult since the onset of the global credit crunch, and this has resulted in lenders having to reduce their mortgage lending and being more careful over who they offering finance to and how much new business they take on. Inevitably this has led to a severe reduction in choice for those that are looking for a mortgage. Whilst the base rate has come down three times over recent months, the cost of mortgage borrowing has continued to rise. Lenders have reduced the number of mortgage products on the market, and have also increase arrangement fees and deposit requirements.
Officials from the Building Societies Association have stated that it could take as long as two years for the mortgage markets to start settling back down, and officials have also added that even then it is very unlikely that the world of mortgages will be as relaxed and accessible as it has been in the past. The government has ploughed billions of pounds into the mortgage markets in order to ease these issues, and has recently launched a £50 billion mortgage rescue plan, about which one official said: "It will not in itself solve the credit crisis, it certainly isn't going to reverse all the changes in lending policies we have seen in recent months, or restore mortgage lending to its former levels, but it should help to underpin confidence. It is vital for the Bank of England to remain very close to what is happening in markets, and it should not hesitate to intervene further and extend the facility if that is what is needed."
Amongst those hardest hit by the problems in the mortgage markets are first time buyers and those with damaged credit – both of these groups face severe restrictions and higher costs when it comes to getting a mortgage.
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