MSE News: Guest Comment: Why is it difficult to get a mortgage?

The problem facing banks (with a knock on effect for those wanting to obtain new mortgages) is that their previous lending policy has left huge numbers of their current borrowers at risk of default (the fault of both parties).

From Robert Peston's blog on the BBC:

"The Bank of England estimates that up to 12% of UK residential mortgages could be receiving some kind of forbearance or special help from banks at present.
A report by the Property Industry Alliance suggests that around 80% of loans to commercial property businesses made since 2004 may be in breach of their Loan-to-Value covenant"

In other words, many are struggling o cope even with the current record low interest rates. How many more would struggle with even a modest rate rise?

If this were to lead to the predicted "tsunami" of defaults, property prices would not just weaken. They would collapse, and in turn this would terminally effect the balance sheets of banks who have already received huge government/taxpayer support. Although some might say that we should let the banks go under, but forget that this would have huge impacts on pensions etc.

It is little wonder, therefore, that banks are now reluctant to take the slightest chance that they might add to their woes, so are now adopting not just a belt and braces approach, but also keeping their hands in their pockets for added security.

At the moment you could liken our economic future to the end of The Italian Job - in a bus precariously balanced on a cliff edge. Unfortunately everyone (government, economists, Bank of England) are waiting for someone to take the Michael Caine position and come up with an idea to rescue the situation. Unlike The Italian Job, however, we will all find out in due course whether the idea brings redemption or catastrophe.

Melanie Bien seems to just be moaning, rather than looking at the reasons for the restrictions. She fails to mention how a large percentage of borrowers were use self certs to falsely inflate their incomes to get properties hence the clamp down.

She does not link the loose lending to the property bubble and seems to want it to return.

I for one have no problem getting a mortgage. The reason I payed off my debts, saved a big deposit and took steps to improve my credit rating. It isn't hard.

How is it that not long ago a bank could offer a mortgage at 0.15% above base rate but now they seem to struggle with anything less than 2.5% above..?

illgetthere wrote: »

whilst i agree with the comments it has put people like myself in a horrible position. I bought my first home in 2002, moved in 2004 and then bought a 2nd property in 2007. I used the equity in my first home to raise a deposit (plus my own cash) to purchase house 2.

You already own 2 houses. I fail to see how being unable to buy a third house is a "horrible position"!