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Mortgage squeeze 'to get worse' | Mortgage squeeze 'to get worse' |
(about 3 hours later) | |
The squeeze on the availability of mortgages is expected to continue in the next three months, the Bank of England has warned. | The squeeze on the availability of mortgages is expected to continue in the next three months, the Bank of England has warned. |
But it also predicted that demand for home loans was likely to fall slightly during the same period. | But it also predicted that demand for home loans was likely to fall slightly during the same period. |
The Bank, in its Credit Conditions Survey, said lenders expected the rate of homeowners defaulting to rise. | The Bank, in its Credit Conditions Survey, said lenders expected the rate of homeowners defaulting to rise. |
Lenders have been raising the cost and tightened the availability of mortgages recently because of the credit crunch. | |
Survey's finding | Survey's finding |
The survey confirmed that lenders had reduced the availability of mortgages in the three months to mid-March and "expected a slightly larger reduction" over the next three months. | The survey confirmed that lenders had reduced the availability of mortgages in the three months to mid-March and "expected a slightly larger reduction" over the next three months. |
Our banks have suddenly rediscovered the risks of providing credit - but it may be a bit late for their or our good Robert Peston, BBC Business Editor Read Robert Peston's blog | Our banks have suddenly rediscovered the risks of providing credit - but it may be a bit late for their or our good Robert Peston, BBC Business Editor Read Robert Peston's blog |
But lenders are also expected to cut the amount of ordinary loans, not secured against property, such as credit cards and overdrafts, in the next three months. | But lenders are also expected to cut the amount of ordinary loans, not secured against property, such as credit cards and overdrafts, in the next three months. |
Small businesses were also expected to feel the squeeze, with a slightly smaller fall in corporate credit on offer. | Small businesses were also expected to feel the squeeze, with a slightly smaller fall in corporate credit on offer. |
Vicky Redwood, of Capital Economics, said the findings increased the chances of the Bank's Monetary Policy Committee cutting interest rates at its next meeting. | Vicky Redwood, of Capital Economics, said the findings increased the chances of the Bank's Monetary Policy Committee cutting interest rates at its next meeting. |
"The outlook for economic growth has deteriorated enough to prompt a rate cut next week," she said. | "The outlook for economic growth has deteriorated enough to prompt a rate cut next week," she said. |
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "This supports the case for the Bank of England taking further action. It is conceivable that they may cut interest rates again next week. | Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "This supports the case for the Bank of England taking further action. It is conceivable that they may cut interest rates again next week. |
"If not, it is almost a certainty that rates will cut to 4.5% by the summer." | "If not, it is almost a certainty that rates will cut to 4.5% by the summer." |
Facts and figures | Facts and figures |
The survey asked lenders about their predictions for mortgage availability over the next quarter of a year. A balance of plus 43% thought that availability would tighten. | The survey asked lenders about their predictions for mortgage availability over the next quarter of a year. A balance of plus 43% thought that availability would tighten. |
A balance of plus 31% said they had cut lending rather than increased it in the first three months of 2008. | A balance of plus 31% said they had cut lending rather than increased it in the first three months of 2008. |
Many put this down to the changing economic outlook and the changing appetite for risk. | Many put this down to the changing economic outlook and the changing appetite for risk. |
Meanwhile demand for home loans was broadly unchanged over the past three months, the survey said. | Meanwhile demand for home loans was broadly unchanged over the past three months, the survey said. |
Some 16% more lenders expected this to start falling in the next quarter. | Some 16% more lenders expected this to start falling in the next quarter. |
All change | All change |
The credit crunch has meant that mortgage providers have been far less likely to lend to each other, leading to a cut in the number of mortgages available. | The credit crunch has meant that mortgage providers have been far less likely to lend to each other, leading to a cut in the number of mortgages available. |
On Wednesday, First Direct, the Co-operative and Lehman Brothers' Southern Pacific and Preferred Mortgages all announced they were suspending some mortgage offers. | On Wednesday, First Direct, the Co-operative and Lehman Brothers' Southern Pacific and Preferred Mortgages all announced they were suspending some mortgage offers. |
They claimed they were being swamped with demand after maintaining competitive rates. Most lenders have lifted rates, despite the Bank of England's cuts in the base rate. | They claimed they were being swamped with demand after maintaining competitive rates. Most lenders have lifted rates, despite the Bank of England's cuts in the base rate. |
HAVE YOUR SAYI've just renewed my mortgage and went for a 10 year fixed rate as I do not trust the current economic climate Merson, StaffsSend us your comments | HAVE YOUR SAYI've just renewed my mortgage and went for a 10 year fixed rate as I do not trust the current economic climate Merson, StaffsSend us your comments |
According to financial information service Moneyfacts, the number of mortgage products on offer has fallen by 20% over the past week. | According to financial information service Moneyfacts, the number of mortgage products on offer has fallen by 20% over the past week. |
This means that people having to remortgage, expected to be more than one million this year, will need to shop around more for a deal. | This means that people having to remortgage, expected to be more than one million this year, will need to shop around more for a deal. |
The situation is even bleaker for first-time buyers even though, paradoxically, the cost of homes has started to drop in the past couple of months. | The situation is even bleaker for first-time buyers even though, paradoxically, the cost of homes has started to drop in the past couple of months. |
They face having to find a much bigger deposit than would have been the case before the squeeze began. | They face having to find a much bigger deposit than would have been the case before the squeeze began. |
Simon Tyler, of mortgage brokers Chase De Vere, said: "The first thing to disappear was over-100% mortgages, then 100% mortgages, then 95% mortgages, and shortly you are going to have to have a fairly substantial deposit, maybe 15% as a first-time buyer." | Simon Tyler, of mortgage brokers Chase De Vere, said: "The first thing to disappear was over-100% mortgages, then 100% mortgages, then 95% mortgages, and shortly you are going to have to have a fairly substantial deposit, maybe 15% as a first-time buyer." |
With the Land Registry putting the average cost of a home in England and Wales at £185,616, buyers could need a deposit of £27,842 for a typical home. | With the Land Registry putting the average cost of a home in England and Wales at £185,616, buyers could need a deposit of £27,842 for a typical home. |