Mortgages Withdrawn from the Market

This week a few of the mortgage market’s leading lenders took decisions to withdraw some of their mortgage products. Moneyfacts.co.uk has said that the number of mortgage products available on the market has fallen by 20% over the past week. In particular, two-year fixed mortgage deals were withdrawn as lenders stated that they were unable to meet increased levels of demand.

While most lenders stressed that the decision to withdraw mortgages was only temporary, these decisions highlight the growingly unfavourable conditions for those seeking to take out a mortgage in the UK.

In these deteriorating conditions for borrowers, it is important to balance up the benefits and drawbacks that taking out a mortgage has compared to renting. Have a look at the Buying or Renting section of Moneybasics for more information. If, after doing this, you decide that it is good choice to buy a home, and hence need to take out a mortgage, find out more about what Purchasing a Home involves.

Read on for a summary of the personal finance stories for the week beginning March 31st 2008.

Monday March 31st

Sixth month of falling house prices –Hometrack stated that house prices have now been falling consecutively for six months as they fell again, by 0.2%, in March. Hitherto annual house price growth has remained in positive territory, however with house prices now standing just 0.4% higher than this time last year it seems just a matter a time until annual house price growth become negative.

While many have suggested that now would be an inappropriate time to enter the housing market, if you decide to take the plunge make sure that you use the Moneybasics Mortgage Calculator. It will help you obtain an approximate figure of the amount you can afford to borrow and how much your monthly repayments would be.

Wednesday 2nd April

Credit conditions worsen – This week the Bank of England released their quarterly survey of credit conditions. As reported in our headline ‘Mortgages Withdrawn from the Market,’ lenders are reducing the credit available to households.

While demand for secured lending, such as a mortgage, remained relatively unchanged over the first three months of the year, the survey revealed that lenders now expect secured lending to fall in the coming three months.

The number of people who were unable to make the payments on their secured debts (such as mortgage defaulters) rose in accordance with market expectations. Lenders report that they expect the number of people that default on their secured lending to increase again in the next three months.

The survey also revealed that the affects of the credit crunch continue to spread out wider into other areas of the business world as there was a rise in default rates for non-financial businesses.

Thursday 3rd April

UK homes 30% overvalued – The International Monetary Fund (IMF) has estimated that the UK housing market is priced 30% above its intrinsic value.

If this prediction proves to come true, the average price of a home will fall from about £200,000 to £140,000. Back in 1996, the average house cost 3 times average earnings. At present, the average house price is about 7.5 times average earnings – an increase of 150%.

Friday 4th April

Consolidate, then borrow again – A survey conducted by uSwitch, the price comparison website, has shown that a quarter of people who take out a consolidated loan later go and borrow again if they have failed to close other existing debts.

Of those that went on to borrow again, the average amount they took out was £2,221.

If you are struggling with debt, while a consolidated loan may be best solution for you, it also may not be. It is important to get free independent help from a debt advice charity such as the Consumer Credit Counselling Service (freephone: 0800 138 1111) or National Debtline (freephone: 0808 808 4000) before taking out a consolidated loan.


Prepared for Moneybasics by Jason Taylor, Advocacy Officer (Credit Action).