Mortgage Outlook Depends On House Prices
Mortgage lenders say that mortgage availability will worsen in coming months. They blame falling house prices and, to some extent, the wholesale borrowing market. Demand for mortgages is expected to weaken too.
Lenders have warned the Bank of England that mortgage availability could get even worse over the next three months. The Bank’s Credit Conditions Survey reveals that lenders will put a further squeeze on home loans in the next quarter, and they expect mortgage defaults to increase.
Chancellor Alistair Darling told the press on Thursday that there was little he or the government could do to revitalise the mortgage market as long as the wholesale credit market remained unmoving. He said that a third of mortgage lending was funded by wholesale borrowing, so the number of mortgage loans would inevitably fall as a result.
In the longer term he was hopeful that the money the Bank has injected into the financial sector would begin to turn the market round. However, much would depend on how international confidence was bearing up.
The government is to try and assist homebuilders by allowing social landlords to buy new homes than remain unsold in the private sector. Housing associations are one example.
In the Credit Conditions Survey, banks are asked about the last three months and predictions for the next three. Lenders predict that house prices will continue to fall, and this follows on from Nationwide’s house price index falling for the eight month in a row. The annual house price fall in June was 6.3%, meaning that the average home costs £172,415 - £13,629 cheaper than at the peak of the market in October 2007.
With demand for home loans having fallen in the last quarter, the forecast is now for that demand to fall again in the next three months. The trend and forecast was the same for mortgage defaults. Further bad news came for first-time buyers, as the forecast was for deposits to rise also.
Whereas there were 11,000 mortgage products on offer a year ago, there are now just 4,000. Lenders say that house price falls have been largely to blame for the loss of so many alternatives in the mortgage market; fewer lenders say that wholesale funding conditions have affected mortgage availability.
