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Mortgage Lending Slumps to All Time Low

[ Posted September 25th, 2008 ]

August 2008 wasn’t a good month for the UK mortgage industry as the industry slumped to all time low. However, this did not happen overnight, this tendency has been gradually building up since April 2008 and it hit the rock bottom in August. It is noted that the mortgage industry slumped by 36% in the past one year. There was a drastic change within one month from July to August 2008 whereby the gross lending was reduced by 12%. Global credit crunch is having its impact on the UK mortgage industry. There is a heavy shortage of mortgage finances and as a result the mortgage lending industry started demanding larger deposits. This made the buyers to think twice before they ventured into acquiring any new properties. Without any eager buyers, the house prices are continuing to fall and the downward pressure is increasing day by day.

Uncertainty rules the UK mortgage industry at the moment and this could have adverse effect on the other areas of the nation’s economy. Both lenders and consumers are unsure of the future trends. Lenders are yet to find a solution to find sources of new funding. The total lending calculated in August was just 21.8 billion pounds in August 2008 which was just 50% of the previous month’s figures. The exceptional poor turnover from the housing market is considered to be one of the major causes of the slump in the mortgage industry. Interestingly, the remortgaging transactions too have reduced considerably. To make things worse and to increase the level of uncertainty in the market, Halifax Bank of Scotland was taken over by Lloyds TSB. Banks are not only reluctant to finance their consumers, interbank funding too is strained. There is an increased reluctance among banks to lend to each other.

UK mortgage industry seems to be in a nasty fix; the credit crunch has created a vicious circle effect one eating on the other. Furthermore even those who are capable of investing in the housing market are waiting to make their move as the UK house prices are expected to fall further. Investors are waiting for the prices to hit the rock bottom so that they can make the best out of the situation. As the situation continues to grow grimmer, there is an increasing upward pressure on the mortgage rates.

To increase the availability of funds, Bank of England has extended its Special Liquidity Scheme. Even without all these issues on credit crunch and falling house prices etc., August is generally a quiet month and with all these problems at hand no wonder the rates plummeted to rock bottom in August. It would take few more months before the UK mortgage industry starts seeing some light. Until then efforts have to be made to keep the other things in the financial market under control including rising levels of unemployment. Some of the economists including Howard Archer predict that the prices will fall further down by 30% and not until the second half of 2010 we can see any improvement.

 
 
 
 
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