The mortgage market is in chaos. There’s no other word for it. Every lender seems to be taking a different approach to dealing with the credit crunch and the fallout from Northern Rock.
Last week NR revealed that it wants to get rid of 60% of its mortgage customers in the next couple of years so that it can repay all the government's emergency lending by 2010.
As a way of softening the blow, the bank has pledged to assist its customers in finding a new mortgage.
In a stable and well funded market this wouldn’t be a problem. Unfortunately for borrowers, this is not the case.
We are seeing daily announcements from lenders describing the latest emergency measures for dealing with the mortgage crisis. Since the British Bankers Association announced a 35% drop in mortgage lending (only two weeks ago) it was revealed that half of the new mortgages were merely people moving from one bank to another, rather than new homeowners tentatively stepping onto the ladder.
Borrowers and first time buyers are seeing the mortgage market disappear, with lenders shrinking the range of mortgages on offer, raising their interest rates on certain deals, demanding much higher deposits from borrowers (some as high as 40%), or withdrawing mortgages completely, as in the case of First Direct, albeit temporarily according to its statement.
HSBC has offered to take up the slack in the market, but note the small print – only those with 20% equity need apply.
According to the Council of Mortgage Lenders mortgage lending for first time buyers this year is at its lowest level since 1975 and the average first time buyer will need 5% of the value of the property to put down as a deposit.
Understandably, the government feels a responsibility to marshal wider market events which have spun out of control, hence the nationalisation. However, its intervention may have destroyed the chances for first time buyers, who have patiently waited for house prices to drop, only to now find that they can’t even get a mortgage.