Honey, I shrunk the market

Honey, I have shrunk the market

Last year was the most successful year in the property and mortgage market. A staggering £360 Billion was lent in mortgage finance by Banks and Building Societies and there were 1,200,000 residential property transactions in the UK.*

This year however the level of Lending has dropped by £100 Billion to £260 Billion. The reason for this decline is the demise of a number of lenders that specialised in less traditional lending such as self certification of income, buy to let and sub-prime mortgages.

The predicted level of Lending for 2009 by economists and lenders range from £170 to £220 Billion. This prediction suggests that Lending will almost halve since its peak in 2007.

But what does this mean for our clients? The Monetary Policy Committee (MPC) has reduced the Bank of England Base rate to 3% which has brought some much needed relief to some borrowers. It should also kick start the housing market with transactions down 50% from 2007 figures.

The majority of lenders that are now left in the market are your traditional high street lenders such as Halifax, Abbey, Royal Bank of Scotland and their subsidiaries. We can only assume that these lenders will look to grow their lending books as soon as markets stabilise, but will remain cautious in the short term.

We envisage these lenders will offer longer term products to clients for between 3 and 7 years rather than the 2-3 year products currently on offer. The market will be smaller as the majority of smaller Building Societies will merge to survive. We have seen a number disappear already and the next ones will be The Yorkshire Building Society taking over The Barnsley Building Society and The Skipton merging with the Scarborough Building Society. These enlarged Societies should offer the consumer better products as they will have increased security and savings balances.

For existing mortgage clients the base rate cut should mean their mortgage payments do not increase too dramatically if their rates expire in the next 6 months or so. However it is important for clients to live within their means and gone are the days when it was possible to continually consolidate unsecured debt onto the mortgage upon renewal as lenders have tightened their criteria.

It is not all doom and gloom as house prices, although still falling, are falling at a slower rate than in previous months. Never since 1955 have interest rates been this low and it will be interesting to see how this affects the housing market when the lenders bring out their new rates. Savers will be less encouraged to keep their money in cash accounts with banks and building societies now and property will soon be considered a better investment again. Higher demand and lack of supply pushes prices upwards and voila – the MPC has achieved its desired outcome of rejuvenating the housing market.

*(Source – John Malone, Premier Mortgage Service)