The situation going in to 2009
A brief examination of the mortgage market in the
UK as we head into the New Year is pretty bleak.
The main feature of the market is that mortgage lenders are continuing to demand larger deposits as they ration home loans to their customers. For example, in the past month the proportion of new mortgage deals requiring at least a 25% deposit has risen, from 54% to 60%.
According to the information service Moneyfacts, 25% of all deals on offer in fact require a 40% deposit.
The Bank of England revealed last week that banks and building societies expect to rein in their lending even more in the coming months.
There are now just 21 mortgages available with a deposit of 5% or less, compared with the position at the beginning of last February when there were more than 1,200 on offer.
The credit crunch and subsequent shortage of mortgage funds has produced a similar collapse in the number of home loans where lenders ask for a 10% deposit, once the traditional down payment. These have fallen from nearly 1,200 at the start of February 2008 to just 148 now.
At the other end of the scale, the number of deals that need a minimum 40% deposit has shot up from just 24 to 341. Similarly, the spread between the interest rate you pay if you have a small or a big deposit has widened considerably. Someone with a small deposit has to pay a much bigger premium on their interest rate and they are also shut out from some of the most attractive deals, such as tracker deals.
The
UK property market shrivelled in an unprecedented fashion during 2008, as the dearth of mortgage funds shut off the flow of buyers and pushed down sales and prices. Sales volumes are currently about 60% lower than a year ago.
And all experts and commentators are united in their view that prices will also keep on falling for the time being, possibly even into 2010. So far there is no evidence that any recent government attempts to inject fresh funds into the banking system have yet fed through to mortgage lending.
The chancellor Alistair Darling is considering a proposal that the government should agree to guarantee £100bn of fresh mortgage lending by the banking industry. But no decision on that plan is expected until the next budget.
