A vanishing market
It wasn’t so very long ago that credit was cheap and easily available, and mortgage lenders were fighting to win business. However, since the credit crunch took hold late in 2007, it has become increasingly difficult and more expensive to borrow.
According to the Bank of England, mortgage approvals for house purchasers declined to just 27,000 in November 2008 (from 32,000 in October) as tighter credit conditions and falling house prices deterred first time buyers from entering the market. Even remortgages, which had held up as existing borrowers sought new deals, were down in November, perhaps partly because of seasonal effects but also because the latest Bank of England moves made it less important to move away from standard variable rates (see below).
The increased risk of default from borrowers in a depressed economy, coupled with a lack of financing available in credit markets, has spurred mortgage lenders to tighten lending criteria. In an attempt to help out, the Bank of England has now slashed interest rates to just 1.5%, the lowest level ever, and they could fall further. This has also brought down standard variable rates for existing borrowers. Despite this, however, mortgages are still hard to come by - and tracker mortgages in particular have all but disappeared.
The Government may be finding it difficult to make the banks lend money, even with the financial support. However, this is an opportunity for banks to clean up their lending books and they may at least eventually emerge in better shape.
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