Mortgage Crisis Effects Credit Crunch | Affecting First Time Home Buyers | Remortgages

Here is the history of how and when the Bank of England has dropped the base interest rate during the credit crunch crisis.

(8 Oct 2008interest rates lowered by 0.5 Percentage Points to 4.5%... 6 Nov 2008 interest rates lowered by 1.5 Percentage Points to 3%.... 4 Dec 2008 interest rates lowered by 1.0 Percentage Points to 2.0%... 8th Jan 2009 interest rate lowered by0.5 Percentage Points to 1.5%... 5th Feb 2009 interest rates lowered by 0.5 Percentage Points to 1.0%... 6th March 2009 interest rates lowered by 0.5 Percentage Points to 0.5%)

The latest report from the Bank of England says "World activity continued to weaken, reflecting both depressed confidence and the persistent problems in international credit markets. In the United Kingdom, output dropped sharply in the fourth quarter of 2008..

...the Committee also resolved to undertake further monetary actions, with the aim of... raising the rate of growth ... to a level consistent with meeting the inflation target in the medium term....

To that end... the Committee agreed that the Bank should, in the first instance, finance £75 billion of asset purchases by the issuance of central bank reserves".

Does this raise the dread spectre that the government is starting to print money? Watch this space

How might it affect you?

Most mortgage customers with tracker deals will have the cut in interest rates passed on to them by their bank or building society.

Customers with an average £120,000 repayment mortgage will see their monthly bill drop by £30.

But those on standard variable rate deals must wait for a decision from their lender, most of which are currently saying their rates are under review.

See more on the latest UK interest rates forecasts and predictions

How might it affect you?

If you are one of four million homeowners on a tracker mortgage, ie where the interest rate you pay is always a set rate above or below the Bank of England base rate, you should see your payments reduce automatically.

For example: a tracker mortgagee with a £250,000 loan will gain by £76 a month while someone with a £150,000 repayment loan will see a fall of almost £50 a month on their mortgage repayments.

But note that many tracker mortgages have an agreed minimum rate that the lender will go down to. Check with your lender what this is.

If you have a standard variable rate mortgage it is not guaranteed at all that any of the reduced interest rate will be passed on to you.

The banks claim this is because they borrow money from each other using a rate called LIBOR (London Interbank Offered Rate - if you care to know) - which is currently higher than the base rate.

If you have a fixed-rate mortgage you definitely will not see a cut unless you get a new mortgage or remortgage.

Despite a general feeling to the contrary lenders are willing to give mortgages.

However their lending criteria over the past year has been constantly changing, resulting in mortgage seekers having to have larger deposits in order to obtain the funding they require.

For those property buyers with a reasonable deposit, and who have a good credit history there should not be a big problem. The best thing to do is to talk to a mortgage adviser and find out your position.

Even those purchasers who have to sell a property are finding that if they are going up market, then the potential saving on the more expensive property more than outweighs the amount of reduction they have had to accept on the property being sold.

We are bombarded with doom and gloom by the press, who seem to love to talk
everything down, but there are some huge plus points currently which we need
to focus on in order to get the property market going again. That will
drive prices back up, which benefits everybody.

See the latest re UK property prices

Plus

First Time Buyers and the mortgage crisis

The Mortgage Crisis and Remortgaging

People Coming off Short Term Fixed rate deals

People Buying Property ie Selling to Buy

The Mortgage Crisis for People with Bad Credit History

The Mortgage Crisis and Mortgages for the Self Employed

General background to the current financial crisis

What about property prices?

House prices have already fallen by about 8% in recent months.

Almost every expert is saying prices will drop. It is only a question of by how much.

Some think property prices will fall by a further 15% in the next few months leading to a total fall over the next year or so of around 20%.

Others talk of a 35% drop.

Between 2000 and 2007 average house prices had doubled - so provided you bought before 2000 - even a 35% drop means you will still have made money on your property.

The people at risk of losing out from falling prices are those who bought between 2006 and 2007. But only if they are forced to sell.

The peak in UK house prices was October 2007 with an average price of £186,000.

A fall of 25% would take the average British house price to £140,000.

If there is a serious recession, which now seems likely, the effect of job losses will mean fewer house sales.

Plus there will probably be less lenders offering money for property purchases.

The fear is that what happened in Japan in the early 1990's might happen in the UK. There, a property boom fueled by cheap credit from the banks suddenly collapsed.

15 years later prices have yet to recover in spite of desperate efforts by the Japanese authorities, including 0% mortgages.

However, on the bright side:

The Japanese don't have Sarah Beeney and the other cheerleaders of the British love for property wheeling and dealing. Meaning it's in our blood and unlikely to go away.

Arguably, as long as the sun shines, food grows and the air is breathable, the Brit's will always have an eye out for a bargain and a renovation.

Another factor to bear in mind is that if the influx of economic and other immigrants, eg from eastern Europe, continues, then there will be a floor to any property crash. These people need somewhere to live and there is only a limited amount of space.

However if the recession is so bad that they go home, this might cause problems, as they have been affecting prices here for several years. This was part of the reason the buy to let boom continued despite all the gloom and doom predictions over the past 4 years or so.

But if the recession is bad in the UK it might be worse in developing countries like Eastern Europe. So they might stay.

Just remember nobody knows anything

Related items

People Selling to Buy Property

More information and predictions on latest UK property prices

The Mortgage Crisis for First Time Buyers who are hoping to buy

Click here to see how the Mortgage Crisis affects Recent First Time Buyers

Latest Summary:

Property prices have fallen over the past year which means that it is a very good time to buy - particularly for those who have nothing to sell.

Be careful about waiting for prices to go down even further. If you have found a place you want to live in then go for it. The chances are it will go up in price over the long term. (Remember you are buying a HOME not an investment. That part should come after the most important thing. Somewhere to live that you enjoy).

So while prices might go down even further does that matter? In the long run they will probably go higher than they are now - depending on the area you buy in

Save up for a deposit. You will probably need at least 5%, more likely a 10% deposit.

You'll need a good credit score so check your credit rating and get to work on repairing any damage to your credit rating

Just thank your lucky stars that you didn't buy at the top of the market, with a mortgage that you couldn't really afford.

In the last property recession of the late 80’s and early 90’s, the majority of victims who ended up losing their homes were first time buyers who had bought property when the market was at its most expensive.

Or of you are not desperate, you can wait to see what happens.

With the flood of unwanted new “too cool” developments sitting unsold, plus the anticipated repossessions, it is very unlikely that rental prices will rise. They might even fall.

So sit back, wait for prices to crash and save up for a deposit- as the days of 100% and high loan to value mortgages seem to be over.

The Mortgage Crisis for Recent First Time Buyers

If you stretched yourself to buy your home then as you probably know, it’s not looking great.

But it depends on your exact situation.

If you are already locked into a fixed rate deal that is good. Hopefully by the time it comes to an end the panic will be over and you’ll be able to get another deal at not too different a cost.

This is because it is possible that however bad the general economy gets interest rates will probably remain very low. (See our latest interest rate predictions for the UK.)

But never forget. Nobody actually knows anything.

A fifth of all mortgages taken out in the past few years are thought to be high risk in that they were for more than 100% of the property’s price or were for more that four and a half times annual income of the borrower.

Already bodies like the Citizens Advice Bureau are seeing a sharp rise in problems.

It is thought that many people are perhaps understandably turning to credit cards and overdrafts to cover their mortgage payments. But if you are doing this be careful. It is only a very short-term solution and could make things worse for you.

The good news is that Gordon Brown is being pressured into acting to help struggling homeowners. For example there is an initiative being pushed by senior labour back benchers to get councils to buy and rent back homes to people in this position.

Read more on what to do if you have difficulties repaying your mortgage in the UK

The Mortgage Crisis for People who are Remortgaging

Your situation very much depends on how much equity you have in the property.

If you are a long-term owner with good equity you should be fine. You will always find a lender willing to deal with you. It is a question of using a good independent mortgage broker to find you the best deal.

The Mortgage Crisis for People Coming of Short Term Fixed rate deals

This might be tricky. If you were intelligent enough to get a good fixed rate deal for say 2 years and are remortgaging for the first time the amount you have to pay will probably rise.

You will still be better off than if you had paid a standard variable rate. Those guys would probably have been paying more than you while you were on your fixed rate. You will both probably be paying more now that the lending conditions have changed.

There are still good deals to be had. Get a good mortgage broker to shop around for you. And keep your eye on the best buy tables.

Meanwhile talk to your current lender about what they are prepared to offer you. The admin involved in them switching you to a new deal is much easier for them than taking on a new borrower.

The Mortgage Crisis for People Buying Property ie Selling to Buy

The problem for you is prices. What the heck is going to happen to property prices in the UK?

There may be some comfort in knowing that any drop in the price of your home is going to be matched proportionally by a fall in the value of the property you’re buying.

So if you are trading up ie buying a more expensive property this should work in your favour. So you may want to sit tight and see what happens.

However if you are trading down you will want to move quickly. The problem is that any property buying / selling chain you’re involved in is probably going to have problems somewhere along the line that will affect everyone else.

Amplified nationally this will exacerbate the slowdown in the property market. It will be an ever-decreasing circle. If you can, sit tight.

The Mortgage Crisis for People with Bad Credit History

Unfortunately it seems that it will now be more difficult for people with bad credit records to get a mortgage offer.

This is because the lenders are drawing their head back into their shells like there's no tomorrow.

They are reverting to their traditional attitude: they want to lend to people with a spotless credit record ie who they would consider low risk, who have a good steady income etc.

Whether or not you can get a mortgage if you have bad credit depends more than ever on your exact circumstances. For example how much of a deposit you have, how bad your credit problems were, and so on.

Your best bet is to talk to a mortgage broker who specialises in bad credit. But do it quickly because things are changing very rapidly.

The Mortgage Crisis and Mortgages for the Self Employed

Traditionally it was always more difficult for people without a regular salary from a large employer to get a mortgage. The lenders had neither the imagination nor the inclination to see that the world was changing and that self employment was an increasing option for many.

That changed over only the past 10 to 15 years as more innovative lenders came onto the scene and saw an opportunity.

Sadly, with the current mortgage crisis (see above) and fears of an economic downturn, it is now likely that many lenders will be reverting to their old conservative attitudes.

It will probably get increasingly difficult to get a mortgage if you're self employed.

However the upside is that there will still be more flexible lenders out there. The battle for acceptance that the self employed are good prospects for mortgages has already been won. You will just have to look harder for a good lender, hopefully only until the general panic is over. Start by consulting mortgage brokers who specialise in the self employed

Interested in our previous predictions of the mortgage crisis / credit crunch as it developed ?

Informed Home Owners save between £6000 and £15000 on their Mortgage

Get a custom rate and see how much you could save by filling out this quick form below.

It's a FREE, no-obligation service.

Value of Property

£
(eg 159000)

Borrow How Much?

£
(eg 125000)

Your Mortgage Type

" I am so glad I did your special enquiry form. It was so quick and compared to my bank the quote I got saved me a lot of money! "
Richard C London