Mortgages Uncovered

It is starting to seem pretty clear that the UK housing market has really dropped over a cliff.

The BofE’s 1.5% rate cut has helped to reduce the monthly costs of current homeowners, but the British housing problem is largely due to the rather reckless policies of some of its’ mortgage lenders during the past ten years. This first happened during late 1980s boom and has suddenly happened again, driven through competition for market share and demutualization.

It would appear that mortgage lenders are completely unable to learn from history, there are many who now feel that the government now needs to start imposing rules on lending to stop this from ever happening again.

Up until early 1980 mutual building societies were lending more conservatively and it was largely based on retail savings. However, deregulation within 80s further allowed them access to more wholesale funds, allowing other banks to enter into the quickly competitive housing / mortgage market. This resulted in lenders competing very fiercely for their market share which meant that mortgages were easier to obtain, the value of loan to income rose and it was commonplace to see 95% mortgages or even more on house prices as expectation in the market at that time was that house prices were rapidly rising which meant that lenders were protected.

The recent government bail-out should stabilize the banking system somewhat; however, it is strongly felt that in the long run the government should set a limit on the maximum of wholesale mortgage funding. Government should further insist that lenders in the future should not offer more than 90% of the property value; they should also halt interest only mortgages and if you cannot afford to pay off principal then it should not be allowed for you to take a mortgage.

Whilst restrictions such as these will mean that mortgages are more difficult to get it is felt that it is necessary due to the disastrous consequences of the past.