UK Mortgage market is in big trouble

When demand  D 1   is in effect, the price will be  P 1  . When   D 2   is occurring, the price will be  P 2  . Notice  that at both values the quantity is  Q . Since the supply is fixed, any shifts in demand will only affect price.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
Is it better to have a mortgage partially serviced and add unpaid amounts to the debt in the hope that things will improve or repossess the house early to crystallise a loss now? The Government will be hoping it's the former, as a wave of repossessions will make for bad headlines and further depress a gloomy housing market.

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.

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posted by John Wilson @ 8:45 AM Permanent Link newsvine reddit


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