Credit Crunch Will Have A Permanent Effect On Loans
Over the course of the past twelve months, we have seen a drastic reduction in the number of mortgage and home loan deals which are currently available on the market, as banks and building societies have been hit with the effects of the credit crunch, creating liquidity problems in the whole sector due to the lack of available funds on the wholesale market and forcing lenders to withdraw their entire mortgage loan product range and replace it with a set of more expensive loans, with a much tougher lending criteria.
New research, which has just been published by the financial product sourcing website Moneyfacts, has revealed the full extent of the reduction in availability of mortgage loan products.
In August last year there were over 13,000 different mortgage products available, giving potential borrowers a wide range of loans to choose from. In August this year however, this number has dropped to below 4,000, an overall reduction of 70 per cent.
On average, the interest rates being charged on mortgage loans have increased, along with the level of initial fees charged by lenders. At the same time, the level of income multiple used to calculate the maximum loan available has reduced and the maximum loan to value ratio available has dropped to an average of 80 per cent, as opposed to 90 per cent twelve months ago. 100 per cent LTV loans have all but disappeared and there have been large drops in the number of products and lenders offering self certification mortgages and sub prime, or bad credit loans.
An analyst for Moneyfacts said “It is highly unlikely that we will ever get back to the same levels that we were at a year ago. One year ago the financial world changed completely as the credit crunch took hold. Today the world of mortgages is a completely different place. There does not appear to be a single aspect of the mortgage market that has not been unfavourably hit.”
But a spokesman for the Bradford and Bingley disagreed. He said “The lack of liquidity in the market has been a key driver to the reduced number of mortgage products and the changing criteria. The increase in prices has been driven by the significant increase in the cost of funds. So the market should still return once the liquidity returns, however there is no specific date for that. The only guarantee when it begins to come back next year and beyond, is that it will be a gradual recovery, not an instant one.”
