The credit squeeze for UK households and businesses has become
considerably worse in the past three months and is expected to
deteriorate further, according to the Bank of England´s quarterly
survey of credit conditions released. For homebuyers this is yet more
bad news, following a spate of mortgage products being withdrawn by
banks in recent weeks, including First Direct and the Cooperative Bank
Lenders who had been offering highly competitive, - best-buy -
mortgage deals prior to the credit crunch were swamped by the response
from customers; now that lenders are finding it difficult to obtain the
financing they need to offer those deals, they are pulling their
mortgage products from the market at an accelerating rate. According to
financial information group Moneyfacts, some 13,000 mortgage products
were available a year ago - the number now is 4,754, with 2,972
withdrawn during March alone.
And the trend will continue in the next quarter, with banks and
building societies tightening their lending criteria across the board,
including cutting back on unsecured loans to businesses as well as
fewer mortgages for house buyers (approvals for new mortgages are down
40% from a year ago). Lenders are fearful about the economic outlook
and unwilling to take risks, especially in light of declining house
prices - these have fallen for the fifth consecutive month.
The survey showed that default rates had risen in the last three months
and would continue to do so. There were 27,000 repossessions in 2007, a
21% increase on the previous year, but this figure doesn´t
include those homeowners who had to negotiate a new arrangement with
their mortgage provider because they had trouble meeting their
repayments. As the credit squeeze tightens, lenders will be less likely
to make such arrangements, putting many homeowners at risk for losing
their homes. At least one million people fall into this category,
according to the Financial Services Authority (FSA).
Analysts are expecting a series of rate cuts by the Bank of England,
the first one probably this month to 5%. Some fear that failing to do
so might risk precipitating the economy into recession.
"The credit crunch has brought confidence in the housing market to an
all-time low," said Lawrence Smith of Decision Homebuyers. "With
homebuyers finding it difficult to secure a mortgage, and sellers
finding it hard to shift their property, the market is in a downward
spiral and set to get worse before conditions improve."