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The number of people purchasing a house has fallen by almost half over the course of the last twelve months. The latest figures from the Council of Mortgage lenders revealed that new purchases fell by another 1% from February to March this year, with 46,500 individuals buying a house, compared with 89,000 sales for the same period last year.

There are several reasons for this decline. Firstly, as lenders continue to restrict their lending criteria following the losses made on the US sub-prime market, it is more difficult to be accepted for a mortgage or loan on a property. This is particularly true for first time buyers, who are essential in order to keep the housing market buoyant. With maximum loan to value ratios being reduced by lenders, first time buyers are having to find additional money for a deposit, whilst still needing to borrow on high income multiples. With talk of house prices reducing, many are continuing to rent until things settle down and they have managed to build extra savings.

Buy to let investors, who have accounted for a large percentage of property purchases over the past few years, are also finding it tough as, once again, lenders are restricting their criteria and rental yields are not sufficient to justify high loan amounts. This is causing the maximum loan to value on buy to let properties to be reduced to around 75%, whereas it was possible to obtain up to 85%, or even 90% LTV at this time last year.

Finally, there is a general lack of confidence in the housing market at present. Much of this is due to the constant doom and gloom we hear from the media who seem to thrive on headlines such as the “credit crunch”, global recession and forecasts of house price crashes. What we are witnessing at the moment is a correction in the market, along with lenders taking a more sensible approach with regard to granting loans and mortgages and as soon as everybody realises this we might slowly start to see signs of recovery in this important sector of the economy.

Over the past few months most of the major banks and other lenders have had a tough time due to the impact of the credit crunch, with many of them struggling to maintain liquidity, being forced to make large cutbacks and, for some, even having to stop new lending on loans and mortgages.

Inevitably, it has been the banks’ customers who have born the brunt of these difficult times and despite the Bank of England reducing interest rates on three occasions since last December, as well as providing the banking sector with a very welcome £50bn cash injection, these benefits have, in many cases, not been enjoyed by those individuals who are making payments on a loan or mortgage. That is until now.

It seems that the recent package from the Bank of England is now eventually starting to work its way through to borrowers, as a number of the large banks have begun to reduce the cost of loans for their customers. The Nationwide building society was the first to cut rates, closely followed by the Abbey and it is expected that most other lenders are likely to follow this trend in the near future.

Although this move suggests an easing of the financial difficulties faced by many lenders, we are not out of the woods yet. Economic conditions still remain very tight and it is unlikely that we will see a complete turnaround in lenders fortunes in the near future. There is still very little confidence in the housing market for the time being and it looks as though all those high loan to value deals on secured loans and mortgages, along with many of the sub-prime products, are a thing of the past. However, this move is good news for borrowers and although there is still a long way to go before the good times are back, many borrowers will no doubt be starting to feel slightly more positive.

For most home owners in the UK today, the greatest asset they own is usually their house. Even if an individual has a mortgage on their home, there is normally a reasonable level of equity in the property, particularly if they have owned the property for a number of years. Although many home owners are asset rich, they are cash poor and not surprisingly, often look to releasing some of the value of their home when they require extra funds, usually in the form of a secured loan or a re-mortgage.

Another option which is increasing in popularity, particularly for those in financial difficulty, is the sale and rent back idea (also known as sale and lease back). With this type of scheme, a home owner can sell their home to a company, usually at a significant discount and the company will then rent the property back to the individual, allowing them to remain in their home which may have otherwise been repossessed.

With recent economic conditions, this sector has grown significantly and concerns have been raised as to whether or not this is a good deal for consumers taking this option, many of whom could be facing financial ruin and may not be thinking rationally and clearly.

As a result of these concerns, the Office of Fair Trading (OFT) is to launch an investigation into the sector to ascertain what level of advice and protection exists for those individuals who may be considering this type of scheme.

Currently, there is no regulation of sale and rent back schemes and most consumer protection groups welcome the investigation and believe it to be not a moment too soon.

Adam Sampson, chief executive of Shelter, commented “these companies encourage hard-up home owners to sign up for what is plainly a very bad deal.” He also said that Shelter have seen many cases where home owners have not only lost out financially on the sale of their house to the company, but then also had no right to live in the property on a permanent basis and ultimately ended up homeless. As a result of this, Shelter are pushing for the Government to introduce regulation for sale and rent back schemes in order to give vulnerable consumers better protection in this area.

With the recent downturn in the housing market and the problems being faced by most major lending organisations at the moment, it’s starting to get quite tough for many individuals with a mortgage or other loan secured on their homes. Many people are seeing their monthly repayments remain constant, or in some cases, even increase, despite the fact that the Bank of England has reduced interest rates on three occasions since December last year, whilst at the same time the value of their homes is being eroded by a general slump in the property market. Also, a high percentage of home owners with a loan secured on their property are reaching the end of their current fixed rate deal, with the prospect of their repayments, in some cases, increasing dramatically.

The above factors, coupled with the general slowdown of the UK economy overall, has led to fears of record numbers of repossessions of peoples homes throughout the course of the year. Already, we have seen the number of repossessions increase by 16% for the first quarter of the year, against the same period for last year and the Council of Mortgage Lenders (CML) have predicted that repossessions will reach 45,000 this year, although many experts speculate that this figure is likely to be higher still.

With this in mind, the industry regulator, the Financial Services Authority (FSA) has commenced a review into the repossession practices conducted by lenders. Their main concern is that lenders’ appear to be too eager to commence repossession proceedings against borrowers, rather than treating this course of action as a last resort and the FSA would like to see lenders offering more help and advice to borrowers and take a more lenient approach to those facing difficulty, as set out in the “treating customers fairly” rules.

The FSA is due to publish the first stage of the review in June this year, but for many borrowers who are currently facing financial difficulties on their loans and mortgages, the help can’t come too soon.

Over the past few months we have all heard many stories and reports from the Media about the likely impact of the credit crunch and slowing economy with regard to those individuals with mortgages and other home loans. As lenders struggle to maintain liquidity within their books and many borrowers’ fixed rate deals coming to an end this year, we will see the cost of our mortgage increase to the degree where it will have a dramatic effect on our standard of living…….apparently!

It was a pleasant change and quite refreshing to hear a more optimistic view of the current situation from Bob Pannell, who is the head of research at the Council of Mortgages Lenders. In his address to a group of professional financial advisers and mortgage brokers at the Mortgage expo held in Manchester, earlier this week, he said “I believe that the most intense payment shock has already happened, or is happening now, especially on two year fixed rate deals which make up the majority of mortgages due to mature this year” he also commented that the effect of the payment shock has not been nearly as bad as we have been led to believe by the Media and that most borrowers with a mainstream mortgage have been able to cope with any increases.

Mr Pannell’s observations were based on the mainstream mortgage deals, for those individuals with a good credit history, which accounts for the majority of the UK mortgage market. He did agree, however, that those borrowers in the sub-prime sector were not so lucky and many faced a far greater payment shock at the end of their current deal than mainstream borrowers and were less likely to have the strategies to cope with the increased payments required of them.

As borrowers’ deals are reaching the end of their terms, an increasing number of individuals are now seeking professional advice from independent advisers and brokers who have access to a much wider range of mortgage products than just those available on the high street, in fact many brokers are seeing enquiries increasing by up to 50% over the past few months.