Mortgage freeze could last two more years
Article source: www.moneynews.co.uk
According to experts problems with the mortgage market could last another two years, even three according to some. During this time some reports suggest that house prices could drop by up to 30% from their August 2007 value. Many home buyers are now waiting for a bigger drop in the market before they make a purchase. In the last year alone, since August 2007, we have seen a drop in house prices of 12.5% alone.
With the bank run on Northern Rock, the collapse of Lehman Brothers and the nationalisation of Bradford and Bingley this week these are increasingly worrying times. With the threat of more bank collapses or takeovers very likely it is highly probably that consumers will be cautious to buy in what is already a volatile market.
Andy Mielzarek, Head of Lending at HSBC, told the Sunday Times that whilst the LIBOR rate (the interest rate at which inter bank lending occurs the cost of lending to customers for the banks may not fall for a couple of years.
A number of lenders including BM Solutions, part of HBOS,HSBC, Woolwich and First Direct have already increase the rate at which they are prepared to lend for mortgages and others including subsidiaries of Nationwide, the building society have announced plans to increase their rates and many others are reviewing their lending rate.
As well as that, and due to a lack of inter-bank lending, and resulting lack of liquidity in the market the criteria on which banks will lend to customers have tightened up significantly. This has been underpinned by a significant reduction in the number of products available on the market.
As well as a reduction in the number of products available on the market, the level of deposit required by the lenders have increased; the Halifax having increased the required deposit on a two year fixed deal from 10% to 25%. Others lender are doing the same, and those that haven’t are more than likely to follow.
If rates rise by just 0.5% on a £200,000 mortgage, there will be an increase of £1000 in mortgage repayments annually. Although this does seem like a small amount, this could mean the difference between making the repayments and defaulting for many home owners on variable rate mortgages. Even if they are coming to the end of their fixed rate periods they may not find a good enough deal to warrant switching from their current provider.
Much of how the next two to three years is played out in the financial markets could be decided on in the next few weeks. Many are looking to see whether or not the $700 billion proposed bail out by the US federal Government is agreed. If the deal is agreed, the US government will acquire control of mortgage assets which will be sold back to the banks once the market recovers. Many agree that the deal in America, if successful, will bring much needed stability to the American and Global Financial Market.
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