Mortgage Lenders and First-time Buyers Stall While the Market Worsens

The mortgage market has hit something of a standstill and it is having knock on effects. Patrick Collinson and Rupert Jones said it best when writing for the Guardian: “Britain's mortgage market appears to be in meltdown, with first-time buyers going on strike and lenders joining them.”

Where many first time buyers are holding onto their deposits and waiting, many banks are taking the same tack. A First Direct mortgage which was on the market a week ago for 5.49% rose to 6.15% in just one week. Banks are desperate to make money and fearful of lending it to irresponsible spenders. Resultantly, mortgages are being denied to those with the slightest blemish on their credit records. Predictions are that house prices this year might fall by record numbers and many houses are already £25,000 cheaper this month than they were last month. This isn’t encouraging first time buyers to take the plunge though. Many first time buyers are scared of buying a home now in case it is worth even less in a year’s time.

Experts have predicted that it could now be the time that the credit crunch loses its grip on the markets and many are saying that margins are improving, but various statistics are indicating that is little more than optimism. Banks are not happy lending and mortgages are drying up which prevents the markets from growing at all, instead they are stagnating. With rising food and fuel prices moral and financial confidence is low, people are more concerned with making ends meet than with buying new homes.

With the last parentally guaranteed 100% mortgage product now off the market, it is predicted that 95% mortgages will be next to go, followed closely by other low deposit deals. According a Guardian article which refers to the Council of Mortgage Lenders, “New buyers now need an average deposit of 13%. As the average first loan is around £113,490, that means buyers have to stump up a deposit of almost £17,000.”

The same enlightening Guardian article also comments: “Many borrowers are opting for the once-ignored standard variable rate: there are no fees and they are free to switch to better rates when they appear. But lenders are getting wise: Abbey is the latest bank to ban new customers from its SVR.”

Because of the financial instability in the markets and the skittish behavior of the banks The Council of Mortgage Lenders have said that they expect more property repossessions to occur this year than last year and their predicted figures show an increase of 18000 repossessions, not including second charge secured loans. Northern Rock and Bradford and Bingley have both been noted as repossessing more homes now than they were before the credit crunch began.

Increasing by two thirds over the past year and a half, arrangement fees now cost more than any first time buyer would expect to pay. This was criticised by the Chancellor of the Exchequer Alastair Darling, but experts in the mortgage industry said that this was a realistic reflection of the challenges banks face in this financial climate and they called Darling’s concerns and agitations ‘naive’.