Mortgage Crisis Latest

What is happening now. The issues and how they affect you

Updated 8th April

Recent Developements with the Mortgage Crisis

The Mortgage Crisis - How it affects First Time Buyers who are hoping to buy

How the Mortgage Crisis affects Recent First Time Buyers

The Mortgage Crisis's effect on People who are Remortgaging

The Mortgage Crisis: issues for People Coming off Short Term Fixed rate deals

The Mortgage Crisis: issues affecting 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

Read about the general background to the current financial crisis

Recent News

In the past weeks the much talked about credit crisis has finally landed with a bang on the high street as a number of mortgage lenders have started to withdraw their mortgage deals from the market.

The major news was First Direct, which “temporarily” withdrew all its mortgage packages from new customers.

It said it would offer mortgages only to its existing customers after being flooded with 5 times the usual number of applications as a result of being one of the best mortgages deals.

The Cooperative Bank soon followed suit by withdrawing some of its best buys mortgages.

Other big mortgage lenders are raising their rates with the prime intention of reducing enquiries or like the Halifax changing their mortgage offerings so that people with smaller deposits have to pay higher rates.

It seems that the number of serious mortgage lenders has fallen from over 100 to only 30 in the last year. And approvals for new mortgages are down 40%.

What the foccacia is happening already?

To industry insiders this simply means is that the boom time of the past few years are over.

The ability of lenders to borrow money at cheap rates - thanks to Governmental level economic policies in the US and so on - and lend this on to the public at low rates are gone. Now that this cheap money is no longer available the party is over.

But all this has to mean is that it is a return to the days of responsible lending when there were fewer lenders who only wanted to deal with borrowers who had bigger deposits and lower multiples of annual salaries to the amount loaned.

Average loan to value rates for mortgages were 3 and a half times. This crept up to over 4 and a half times. And even higher multiples eg up to 5 times your annual salary were fairly easy to find.

To industry outsiders like us, it is interesting that the mortgage lenders are reportedly withdrawing their "products" from the market because of capacity problems ie a difficulty in actually processing enquiries – as much as because of difficulties in funding new mortgages.

One wonders if there is any possibility that the big boys are taking advantage of the general sentiment of doom and gloom to re establish their once dominant positions and dictate prices that will lead to ever greater profits.

But no That’s unlikely. These guys wear suits and are very trustworthy. People like that just don’t behave in any way other than perfectly.

Whatever the true aims of the lenders here is how new situation might affect you:

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

If you haven’t bought a home yet then thank your lucky stars. You’ve probably had a close shave.

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 at the top of the market ie when it was at its most expensive.

It seems likely that property prices will fall. (They’ve already been falling for 6 months). It is simply a question of by how much. The International Monetary Fund says UK residential property is over valued by 30%.

While many intelligent people have been predicting a crash for at least 3 years it seems that the credit crisis caused by our clever friends in the city will prove to be the tipping point.

So 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 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 accpeptance 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