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Mortgage Market Unaffected by Banking “Bail-outs”


Latest reports are indicating that mortgage lending is continuing to tumble despite the recent flood of public money into the banking system. Figures from the Council of Mortgage Lenders (CML) for the month of September show that gross borrowing totalled £17.7bn – the lowest figure since January 2005 and the lowest September total since 2001. Although mortgage lending traditionally dips between August and September, this year’s trough is particularly pronounced – adding weight to the CML’s prediction that gross mortgage lending will fall by 30% this year to £255bn.


Despite the government pledging vast sums of tax-payers money to prop up certain financial institutions, the mainstream lenders are still concentrating on the “quality”, low loan to value end of the market – i.e. borrowers who have large deposits or substantial equity in their properties. Indeed high street lenders are demanding higher and higher deposits in order to secure the best deals. For example, Britain’s biggest building society, the Nationwide, has now stopped offering all but one of its mortgage products to customers with a 10% deposit, raising its minimum deposit to 15% for the remainder.

With mortgages harder to secure, coupled with expectations that prices have further to fall, buyer interest has been seriously dampened. This has lead to large numbers of unsold homes and estate agents telling sellers to lower their expectations along with their prices. Hardly surprising when the Royal Institute of Chartered Surveyors (RICS) have stated that the average agent is now selling less than one home per week. Indeed it was reported this week that a chain of London estate agents, Lauristons, were now offering to sell houses for no fee until the end of the year.

Recent cuts in the base rate of interest by the Bank of England have made trackers the current mortgage of choice.  However, in reaction to this many high street lenders are rapidly withdrawing their best tracker deals.  For example, Nationwide have finally got round to passing on the latest 0.5% cut to its existing customers whilst simultaneously raising the interest rate by the same amount for new customers.  Other banks such as HSBC, Abbey, Barclays and Lloyds TSB have already increased their tracker rates but they are still cheaper than the best fixed rates currently available.

Something that has come to light recently in relation to tracker mortgages is the small print that many lenders put in the contract to guard themselves against any future big cuts in interest rates.  Some of Britain’s biggest banks and building societies have clauses in their mortgage terms and conditions that will make sure that they don’t have to pass on the savings if the Bank of England base rate falls below a certain level.  Nationwide will not cut your monthly repayments if the base rate falls below 2.75%.  Halifax can increase the margin over base charged by the tracker if the rate drops below 3% with the Yorkshire and Skipton Building Societies stopping customer savings at the same point.  Other banks such as HSBC have vague catch-all clauses in their contracts to enable them to look after their own interests and Barclays track their own base rate rather than the Bank of England’s.