Homeowners Opting to Stay Put, Lending Declines to £24 billion

The UK's Gross mortgage lending declined to £24 billion last month, which is a fall that is quite significant compared to February 2007. The figures that were released on March 20, 2008 showed that mortgage lending was down 6% compared to the £25.6 billion acquired in February of 2007. That figure is also down 7% from the £25.9 billion in January of this year. This drop is mostly due to the current financial situation, which has resulted in a decline in the number of people buying homes in the UK, according to the Council of Mortgage Lenders (CML). More owners are making the decision to stay put instead of remortgaging.

The latest figures for lending are directly in line with the Bank of England approvals data for January 2008, which showed that the levels of house-buying activity was subdued and that there was a sharp rise in the remortgaging approval rates.

The CML's director general, Michael Coogan, said that a significantly slower phase has been entered in the housing market and that there will be problems that are ongoing within the mortgage funding market unless the Bank of England develops broader, new attempts to improve the liquidity levels within the UK. The demand for mortgages is remaining quite strong, but the existing funding is keeping them from being fully met. This has caused many lenders to reduce their product ranges, increase the prices of their mortgages, and, in some instances, reduce their lending capacity. Coogan has also said that the lenders have had no choice but to re-price and adapt their products on a daily basis because of the current credit crunch.

The latest changes that have been made to the mortgage market is in the Co-operative bank, which has become the latest lender to require a higher deposit by cutting its maximum loan-to-value ratio to 90%, which is down from 95%. Some of the bigger lenders have had a slight increase in their interest rates on certain fixed-rate deals, while making other deals available only to those who have the ability to put down a 40% deposit.

In the meantime, the market for sub-prime mortgages continues to become even stricter. Even in restructuring deals, bigger deposits are being demanded and higher interest rates are being imposed. It seems that many are withdrawing from the 100% mortgage market, which is requiring more deposits from borrowers. In turn, this keeps those who cannot afford to put down the money from trying to acquire a loan. As more and more lenders withdraw from the 100% mortgage market, fewer consumers will be able to acquire mortgages. Many may find that a mortgage they could have gotten a month ago is not able to be acquired now.

On the positive side, lenders are constantly changing their deals. Some even change several times a week. This means that those shopping for a mortgage may be able to find the deal that they need as long as they are constantly shopping around and not settling with the first lender that will give them a chance. By settling, the borrower may be subject to a larger deposit and/or a larger interest rate.
However, there are some lenders who have not yet withdrawn from the 100% mortgage market, but there may be other issues to contend with such as high interest rates. The same goes for those who are staying put with their current mortgages. They prefer to stay with the deal that they have than risk paying a higher rate than what they are paying now, so they feel they are better off not changing a thing.

Article by: Lee Dawkins 26-03-2008

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