Mortgages in the UK are becoming less available as a result of the banking crisis and urgent government action is needed to tackle the problem.
This week saw Bradford & Bingley’s entire range of mortgages withdrawn after the government took over its book of mortgages and Abbey took over the B&B branches and savings accounts. All the companies in the HBOS group - Bank of Scotland, Halifax and Birmingham Midshires - have reduced the range of mortgages on offer. Some other lenders have reduced availability because they are handling such high volumes of loans, among them Newcastle Building Society.
Nationwide, one of the last lenders to keep a wide range on its shelves, is withdrawing its fee-free mortgage offer for existing borrowers who remortgage with it.
The government got a report earlier this year on the mortgage market problems that it had commissioned from the FSA. This set out a range of actions that would help lenders to offer more loans. Though both the Bank of England and the Treasury signalled their opposition to its proposals at the time, they now have no choice but to act to prevent a mortgage meltdown.
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Lack of long-term funding
The key problem remains that banks cannot obtain long-term funding in the wholesale money markets, and until they can, they have to restrict the amount they lend to the amount of cash they have collected from depositors. Between them, the Treasury and the Bank of England can resolve this problem but may need a real kicking to do so.
Meanwhile, the number of people moving home continues to shrink. A survey from Sainsbury’s Bank shows that one in five homeowners plans to extend their home with a loft conversion or extension, and in most cases this is probably an alternative to moving home. And the high rates of Stamp Duty
introduced by Gordon Brown are undoubtedly also deterring people from moving.
The government’s recent package of measures to support the housing market did nothing to deal with the general mortgage problem. And as homeowners see less chance of selling their house at all
- even at well below what they think is fair value – more and more will simply decide to stay put.
We are heading towards gridlock in the housing and mortgage markets and only decisive action by the government can prevent it.
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