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Following the credit crunch, banks and building societies are facing increasing difficulties being able to provide loans and mortgages for individuals due to a lack of available funds in the wholesale money market.

Earlier this year the Bank of England injected £50 billion into the banking sector, under its special liquidity scheme, in order to try and revitalise the home  loan industry and ease the strain on lenders. However this level of funding has not been sufficient, according to an interim report from Sir James Crosby, deputy chairman of the Financial Services Authority (FSA).

In the report, Sir Crosby claims that action needs to be taken urgently to restore some suitable level of liquidity within the mortgage loan industry if we are to avoid the current problems becoming far worse and the housing market slump deepening further than it already has done, due to a lack of funding and he has suggested an extension to the Bank of England’s special liquidity scheme, along with other plans, to boost the home loan market.

As new lending figures for the month of June show that the level of new loans has dropped to an all time low, experts within the mortgage industry have called on the Government to act sooner rather than later, once the full report has been published later this summer.

Industry experts have welcomed the news, but have reinforced the fact that positive action needs to be taken. Michael Coogan from the Council of Mortgage Lenders (CML) said “Today’s analysis sets down an independent market that intervention to address the mortgage funding gap is both appropriate and necessary.” He added “Without action, the situation in the housing market will be worse than it needs to be. The housing correction will overshoot and the knock-on effects on the wider economy will be significant.”

Chris Cummings of the Association of Mortgage Intermediaries (AMI) claimed that the recommendations should have gone further. He said “As the situation worsens, we will see arrears and repossessions increase. To deliver a stable mortgage market, it is now time for decisive leadership from the Treasury.”

We reported yesterday about how the average price of a house in the UK has dropped consistently now for ten months in a row, making many people reluctant to apply for any type of loan or mortgage to buy a new house, due to the probability that they will be able to purchase the same property in a few months time for less money, which has the effect of driving prices down yet further.

But a recent report from the National Housing Federation (NHF) has managed to provide a slight glimmer of light at the end of the tunnel for the housing market with the first optimistic view for some considerable time with regard to the future.

Although the report, which has been researched by a group of independent economists, predicts that property prices are likely to continue to fall throughout the rest of this year and also through 2009, the market will probably start to recover in 2010 and then be followed by rapid growth from 2011 onwards.

The report suggests that the average price of a house in the UK is likely to increase by up to twenty five per cent over the next five years, with continued growth following. A spokesman for the NHF said that despite the recent reductions in prices, property still remained unaffordable for many individuals, making it very difficult for someone to be accepted for a loan or mortgage on a property unless they have a significant deposit.

He said “It is clear that even with house prices falling, affordability has not improved one iota. Ministers need to support housing associations in developing mortgage rescue schemes that prevent households from losing their homes. They should also support housing associations in buying up unsaleable private developer homes of a sufficient standard.”

We have all now become used to the news that house prices have fallen yet again, in fact most of us who take any interest in such things have come to expect the same announcement each month and, of course this month is no exception.

The latest survey figures from Hometrack have shown that prices have fallen for the tenth month in a row during the month of July, with an average drop of 1.2%. This is greater than the previous months’ figures, when prices fell by 1% and the average decrease in property value is up to 4.4% over the past twelve months.

Those people selling their homes are, on average accepting less than the asking price and once again the figures mirror those shown above, with vendors accepting an average of 90.9% of the asking price. This is good news for buyers who are able to make significant savings on the purchase of a new home, as well as increasing the likelihood of being accepted for a mortgage or home loan due to better affordability.

Of course, the fact that prices are still reducing has put many potential buyers off until things settle down and the same is true of lenders, many of whom are reluctant to offer loans and mortgages on properties, particularly for a high loan to value ratio, for fears of a negative equity situation in the future and due to this fact, those applying for a new home loan are needing to find a larger deposit to fund the purchase, another factor which is helping to slow the market.

The biggest decrease in prices has been in London and the South West, although these are the areas which have previously seen the largest growth rate through the course of 2006 and the first six months of 2007 and therefore it is understandable that they are also seeing the largest correction in property prices.

Since the onset of the credit crunch, the ability of lenders to grant mortgages and home loans to individuals wanting high loan to value ratios and high income multiples has been dramatically affected, with most lenders restricting their criteria severely as they struggle with their own liquidity problems.

The limitations which have been imposed by loan and mortgage providers on customers have been well documented over the past few months, but it is not only the high loan to value deals which have been affected, another area of the market to be hit is the large loan sector.

The news comes as Nationwide, one of the UK’s largest lenders, became the latest mortgage and loan provider to announce that it was reducing the maximum loan size it was prepared to advance to customers by half, with a new a maximum loan limit of £500,000. A spokesman for Nationwide described the move as a “Prudent and sustainable way to manage its business during the current crisis.”

The latest figures from the Council of Mortgage Lenders (CML) showed that during the course of last year the large loan sector had increased by 29 per cent, but in the first quarter of 2008 alone, the number of new loans granted, in excess of £500,000 fell by 9.3 per cent, compared with the last three months of 2007.

These figures just go to show that it is not only the high loan to value and sub-prime sectors of the loan and mortgage market which are being affected, but also the high net-worth client area of lending.

Although the Nationwide has withdrawn from the large loan sector, there are still plenty of lenders who are quite happy to continue to participate in this area of business and loan providers such as the Abbey, HBoS and Cheltenham and Gloucester all continue to offer loans up to a maximum amount of £1,000,000 and will be more than likely to welcome the additional business from the Nationwide with open arms.

There has been a lot of discussion with regard to the housing market over the past few months since the onset of the global credit crunch, with particular reference usually being given to those looking to buy a new property and the difficulties they are probably experiencing in being able to be accepted for a mortgage or home loan and raising sufficient cash to be able to fund the necessary deposit required.

The plight of these individuals has been well documented, but spare a thought for those people at the other end of the housing market who are wanting to sell their property.

Recent reductions in house prices have gone a reasonable way to helping the housing market recover and allow people to get back into the market, particularly first time buyers, but this has been of little comfort to those individuals whose houses are currently up for sale.

According to a recent survey, there are now fifteen properties for sale on the market for every one person who is looking to buy one and this means that a vendor has to do something special if they want to sell their home, either through spending money on renovating the property, or reducing the price, or even both in order to make the sale.

For someone who is selling and moving up the property ladder the situation is not too bad, as they will reap the benefits on the purchase of the new house, but someone wanting to down size, or even sell up altogether, perhaps looking to use the cash from their home to fund their retirement, faces the frustrating prospect of receiving quite a bit less than they would have done at this time last year.

Many of these individuals may still have outstanding mortgages or secured loans on their homes and this will also eat into their already reduced profits. We must also remember however, that most of those selling will have enjoyed a significant level of growth in their property value over previous years and this must be taken into account when considering the small correction they are currently experiencing.