UK Mortgage market is in big trouble Tuesday, July 01, 2008
Image via WikipediaThe UK housing market is falling off a cliff.
In May, mortgage applications and approvals dropped dramatically. This normally forewarns of a sharp decline in house prices. Price expectations are such that few potential buyers want to commit to a purchase when they believe that similar properties will be cheaper in a few months.
Only 42,000 applications were approved in May, according to the Bank of England, a drop of 64% when compared with the same month last year. However, it is not just that buyers are disappearing but lenders are both increasing the rates they demand and imposing tighter lending criteria.
The mortgage market turbulence has had an immediate impact on intermediaries in the space, who were already buffeted by reductions in available mortgage capacity from lenders. Charcol, one of the UK largest mortgage brokers announced today it was cutting a quarter of its workforce and closing branches.
Similarly, lenders are looking at redistributing headcount from application processing to credit control and arrears management, with the aim of intervening much earlier in the arrears process.
Those lenders face a double whammy
- increasing prices are eroding disposable incomes, leaving some borrowers unable to make repayments on mortgages [that were probably too large in the first place];
- having lent at Loan-to-Value [LTV] ratios at 90% and above, they are materially exposed to falls in property prices eroding the value of their security/collateral
The irony is that this is a Government that proclaimed it wanted cheaper and affordable housing - as house prices fall sharply, they are going to get their wish.