Chancellor explains new plans for the mortgage market
Article source: James Charles - www.timesonline.co.uk
After the recent bail-out of banks with about £37 billion from taxpayers, the Treasury has sought to clarify their proposals; they had previously stated that they wanted the three banks involved in the bail out to resume lending to homeowners and small businesses “at 2007 levels.” This was received with so much opposition by mortgage lenders and as a result, the Treasury Chancellor Alistair Darling has stepped up to shed light on the position of the HBOS, the RBS, and Lloyds TSB.
According to the Council of Mortgage Lenders (CML), the move was totally inappropriate because the current market situation is going to take a long time to return to the lending levels of 2007.
The Chancellor has said that the statement was meant to express the need and willingness of the banks to work towards stabilising the market situation, bringing in the previously present competitive aspect and create a variety of mortgage deals for the customers. 2007 saw the highest ever recorded mortgage lending by banks and building societies with a staggering total of £363.8 billion lent in total. The bailed out banks, Halifax Bank of Scotland, Lloyds TSB and RBS together contributed to over one third of all this lending.
The Council of Mortgage Lenders has however observed that lending for August of 2008 had fallen drastically to a mere £21.8 billion. It follows that a move back to the lending levels of the previous year will need the banks and building societies to increase lending by about 35%, a figure which seems impossible at the moment.
Over the period of the financial crisis, so many mortgage deals have disappeared from the market with the number of mortgage deals available today standing at 3,249, down from a impressive 15,599 mortgage products in July 2007. Many discounted rate deals have gone out of the window and the number 5% deposit deals now stand at 53 this month, down from 1,079 in July last year.
These 5% deals which are mainly being offered by the Nationwide, the Abbey, and Halifax are also very likely to be withdrawn from the market as well. The 100% deals are all but extinct with lending rates for the 95% mortgage deals requiring a high interest rate of up to 7%. In addition, mortgage rates have gone up a great deal, making it so hard for mortgage borrowers to secure any deals with a recent increase of the two-year fixed rate charges from 6.26% to 6.33%.
The Government’s move to aid banks in helping borrower to get through this crisis may not have any remarkable outcome just yet but it is nothing short of a bold plan towards supporting the financial system against further down fall.
There is definitely going to be introduction of tougher policies by the Government to govern the banks and possible regulation and intervention if need ever arose although government re-capitalisation may be out of the question. There has been the suggestion that bank bonuses for executives should not be drawn down until after a period of about 10 years, that is only if profits are sustained.
The market situation is weighing down on everybody even first time buyers who cannot lay claim to their dream homes because even though the house prices have hit an all time low, they are still required to have some amount of deposit of about £15, 000 for an average priced property in UK. Even after the Bank of England announced a base rate cut, lenders are yet to pass on the cut to their customers.
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