Mortgage Rationing

Shupufski

Hamish asserts that UK mortgage lending is at "one third" of some self-determined "natural level" and that this is nothing to do with UK lending standards or UK house prices.

So, if this "two thirds" of an abolsute irrefutable level of demand exists why have new lenders not been established to serve it?

McTavish has explained that its because of the "US credit crunch" and wholesale market seizing up etc. If we accept that this has put paid to the extension of lending from existing banks then we still have no explanation for why new lenders have not jumped in.

We are constantly told that there are huge amounts of cash rolling around the world looking for a return. So surely someone would use some of this and jump into lending on UK property?

Please tell me why this has not happened or is it simply that rationing of mortgages does not exist.

IveSeenTheLight

I have been going through a process of receiving new mortgage approvals.
I now have 3 seperate mortgages in principal awarded (for BTL's, two remortgage and one new) and am now completing the paperwork.
so to an extent, your right, mortgage lending is available.

however.........

As I Understand It, Hamish refers to rationing in that the deposit requirements (or excessive interest rates for higher are restricting the market to those with the necessary funds available.
The restriction compared to years previously squeeezes the demand.
Essentially, it limiting funding to more wealthier applicants.

Shupufski

IveSeenTheLight wrote: »

I have been going through a process of receiving new mortgage approvals.
I now have 3 seperate mortgages in principal awarded (for BTL's, two remortgage and one new) and am now completing the paperwork.
so to an extent, your right, mortgage lending is available.

however.........

As I Understand It, Hamish refers to rationing in that the deposit requirements (or excessive interest rates for higher are restricting the market to those with the necessary funds available.
The restriction compared to years previously squeeezes the demand.
Essentially, it limiting funding to more wealthier applicants.

So tell me WHY they are doing this?

Going4TheDream

Shupufski wrote: »

So tell me WHY they are doing this?

Minimising their risk/exposure perhaps seems the most simplistic answer

IveSeenTheLight

Shupufski wrote: »

So tell me WHY they are doing this?

While the market was visibly rising, the risk was percieved to be reduced as despite the owners circumstances, the lenders had safety in that the property prices were increasing, their loans were to an extent protected.

Now that we are pretty much in a stagnant market (some months up, some months down) the risk to lending is increased, especially at lower LTV's.

that's why by increasing the deposit requirements, they are restricting the market to those that have the deposit funds or via increased rates, obtain a worthile return for the risk at higher LTV's.

It is not necessarily indicitive that they think prices will lower, they just prefer a level of security.

IveSeenTheLight

Going4TheDream wrote: »

Minimising their risk/exposure perhaps seems the most simplistic answer

LOL, far more simpler than I articulated

wotsthat

Shupufski wrote: »

We are constantly told that there are huge amounts of cash rolling around the world looking for a return. So surely someone would use some of this and jump into lending on UK property?

If you had lots of cash and were looking for a return would you jump into lending against UK property?

The query about mortgage rationing has been answered for you across two threads now. The banks are under pressure to rebuild their balance sheets and lend more at the same time. Their approach has been to lend to better risks than in previous years.

Whether it's mortgage rationing, which seems to be a polarising phrase, or simply that current lending criteria are now a permanent reality makes no difference. Higher risk borrowers will find it more difficult than the recent past to gain access to credit at attractive rates.

HAMISH_MCTAVISH

A survey of chartered surveyors said that potential buyers were still being put off by economic worries and continued mortgage rationing.
http://www.bbc.co.uk/news/business-13760176

Mortgage rationing, which has depressed UK property sales, will stay in force until at least the end of 2012, the CML says.
http://www.bbc.co.uk/news/business-13620099

the rationing of mortgage funds by lenders are attributed to the general stagnation of the market.
http://www.mortgageintroducer.com/mortgages/240338/5/Industry_in_depth/House_prices_still_sliding.htm

One factor weighing on the market has been the continued rationing of mortgage funds by lenders
http://www.vanguardngr.com%2F2011%2F05%2Fuk-housing-market-still-lacklustre%2F

And finally, from the CML themselves, who readily accept that the UK mortgage market is "dysfunctional".....

In our view, the key point about UK mortgage and housing markets is that they remain dysfunctional, and are not effectively meeting the needs of consumers.

What is really needed is a sufficient flow of mortgage lending to allow those who can fulfil their financial commitments to move home in response to their changing circumstances if they want to, and for first-time buyers to realise their reasonable aspirations to become home-owners.

Shupufski

wotsthat wrote: »

If you had lots of cash and were looking for a return would you jump into lending against UK property?

The query about mortgage rationing has been answered for you across two threads now. The banks are under pressure to rebuild their balance sheets and lend more at the same time. Their approach has been to lend to better risks than in previous years.

Whether it's mortgage rationing, which seems to be a polarising phrase, or simply that current lending criteria are now a permanent reality makes no difference. Higher risk borrowers will find it more difficult than the recent past to gain access to credit at attractive rates.

I agree. The phrase "mortgage rationing" appears to have been coined by those who believe that the new realities of lending are a deviation from their self-perceived norm rather than a reflection of the fact that property is no longer the golden goose.

wotsthat

Shupufski wrote: »

I agree. The phrase "mortgage rationing" appears to have been coined by those who believe that the new realities of lending are a deviation from their self-perceived norm rather than a reflection of the fact that property is no longer the golden goose.

We'll have to wait and see; I'm always a little wary when something is declared as a new reality or paradigm shift as usually it isn't.

I'm also not convinced that the new reality or the temporary mortgage rationing is a good thing. Arrears and repo's weren't that high anyway and people who would have been buyers three years ago are now renters which is much more expensive way to fund a lifetime of housing.

dtsazza

wotsthat wrote: »

We'll have to wait and see; I'm always a little wary when something is declared as a new reality or paradigm shift as usually it isn't.

You could apply that in either direction, though - the 100%+ mortgages of the mid-2000s weren't exactly normal either. (I agree that sooner or later 90-95% LTV is likely to be the norm again.)

And I don't really like the term "mortgage rationing" - mortgages have always been rationed to some extent, in that the banks take a look at your situation and give you a yes or no answer (or a "yes, but with a higher rate/bigger deposit"). In light of recent events (such as lots more people than usual failing to pay their mortgages), they are understandably more cautious about their decisions.

So none of this has been a paradigm shift, just natural fluctuations in perceptions of risk and reward.