Mortgage lending in August dropped by 95%
Article source: www.earth.co.uk
According to the Bank of England, mortgage lending in terms of value dropped by a staggering 95% on the previous month (July 2008). According to the Bank of England the UK lenders handed our just 5% of the £2.9 billion lent in the month of July, a meagre £143 million in loans last month.
There are numerous factors to consider when looking at these figures. Firstly the global financial market, in particular America, which has strong financial links to the UK is also suffering. Secondly a number of majors institutions have either been nationalised, gone bust or gone into receivership; including Northern Rock, Bradford and Bingley, Lehman Brothers and AIG; this is worrying many of the banks and breading a lack of trust and a reluctance to lend. If the banks where prepared to lend to each other, the inter-bank lending rate (LIBOR) (the rate of interest at which banks normally lend money to each other) is astronomically high, so even then, when the funds are available the banks are unprepared to borrow. All of this has led to rising interest rates, falling property prices and a lack of liquidity in the banking system.
Most banks have increased the rate of their two year fixed rate deals with the average currently standing at 6.28%, very high compared to the rates seen 12 months ago.
The other factor to take into account is that, as well as a lack of liquidity in the banking system, and a lack of mortgage products on the market, property prices in the UK have fallen for their eleventh consecutive month. Who in their right mind would jump onto the property ladder right now? Certainly not a first time buyer, they would prefer to wait a year and see how the market pans out; Certainly not a young family, they would rather save their cash and wait till the prices drop; Certainly not the buy-to-let investor; he’s more worried about how he is going continue paying his existing mortgages and regretting not pulling out a year ago when the market was hot.
According to the Daily Telegraph the announcement that only £143 million was lent in the month of August comes as a number of lenders push up their rates including BM Solutions, a subsidiary of HBOS.
As well as lenders raising their rates they are also tightening their criteria for lending. Gone are the days when you could borrow 7 times your income on an interest only mortgage. In are the days with few mortgages available on the market higher lending rates and bank like the Halifax raising their deposit requirements from 10 to 25%.
With the American financial market in turmoil as well, many are looking to the senate to approve the $700 billion financial aid package to bring some much needed stability to a troubled market. In the UK others are looking to the Crosby report which is due to be release on the 13th. Whatever the findings, it’s no doubt that we are in the midst of a recession.
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