MORTGAGE lending could fall by half this year unless the Bank of England takes more action to ease the effects of the global credit crunch, the Council of Mortgage Lenders (CML) has warned.
CML chairman Steven Crawshaw said yesterday that home loans could fall to half last year's £108 billion as lenders tighten their rules amid fears of an economic slowdown.
Mr Crawshaw, who is also the chief executive of Bradford & Bingley, said: "
Potential borrowing still significantly exceeds the industry's collective capacity to supply funds.
"It is therefore a real possibility that net lending in 2008 could reach only half last year's level unless additional funds become available."
Earlier in the week, figures from the CML showed the number of mortgages had fallen to its lowest level for 16 years. There were just 49,000 loans made to home buyers in February, 3.5 per cent lower than January's figure and 33 per cent down on February last year.
The Bank of England cut the base rate of interest to 5 per cent on Thursday, but many lenders have increased their charges so much in recent weeks that the move will make little difference to consumers.
Mr Crawshaw urged Mervyn King, the governor of the Bank of England, to "show leadership", saying there was a "real and immediate need for broader-based action than we have seen to date".
Central banks across the world have attempted to combat the credit squeeze by pumping billions into frozen money markets, with little success.
The CML chairman said more funding facilities from the Bank of England were needed because lenders concerned over their ability to access future funding were managing their business pipelines "very cautiously".
He added: "Without attracting new funding sources, we will see an ongoing process of attrition in mortgage choice, possibly over a protracted period, with lenders managing down demand by tightening lending criteria, increasing price, or withdrawing more products from the market."
And Mr Crawshaw said the Bank should "seriously consider" kick-starting the market for mortgage-backed securities – possibly through offering pension funds incentives to buy them – to prevent new business levels shrinking in the long term.
The Chancellor, Alistair Darling, this week appointed former HBOS chief executive Sir James Crosby to head a working group aimed at solving the funding issues.
Q & A: WATCHWORD IS CAUTION DESPITE BANK OF ENGLAND RATE CUTQ: Will the Bank of England's decision to cut the base rate of interest mean good news?
A: Not necessarily. The Co-operative Bank yesterday became the latest lender to cut its rates, imposing a reduction of its standard variable rate (SVR) by 0.25 per cent to 6.99 per cent. Halifax has also reduced its SVR from 7.25 per cent to 7 per cent, while the Woolwich, Nationwide, and First Direct are also cutting their rates.
However, not every lender is following suit.
Some fixed-rate deals, meanwhile, have become more expensive since the latest announcement.
Q: House prices fell in March. Is this perhaps just a blip?
A: It will take a few months before we know for certain if prices are falling in the longer term. Howard Archer, UK economist with Global Insight, says changes in the market should be assessed over a three-month period.
The market is not in rude health, but Mr Archer advocates patience. "If we have another sharp fall in April, it could be a real sign the market has turned for the worse," he said. "If we don't, it could just be market volatility."
Q: I'm a first-time buyer. Can I still get on the ladder?
A: The heady days of 125 per cent mortgages are gone for the foreseeable future, and it is best to prepare yourself for a turbulent time. In the wake of Abbey's decision to withdraw from the 100 per cent loan market – the last lender to do so – buyers must scrape together a deposit of at least 5 per cent. Despite the fall in interest rates, first-timers are unlikely to see a fall in mortgage rates as lenders remain unwilling to compete over rates and deals.
Q: I am looking to remortgage. Are there any particular deals I should be looking for?
A: About 100,000 two-year fixed deals taken out in Britain in May 2006 will be up for remortgaging next month. Combined with those three-year fixed deals taken out in May 2005, about £15 billion worth of fixed-rate mortgages is due for refinancing.
Depending on your circumstances, there may be good news…
HSBC has bucked the trend of a cooling market, vowing to match expiring fixed-rate deals with rates as low as 4.54 per cent for those borrowers with 20 per cent or more equity in their home. Be quick, though – the deal, which will last for two years, is only open to applicants for five weeks as of Monday.
Q : Should I be looking at fixed-rate deals?
A: Fixed-rate mortgages have not escaped the credit crunch. The average cost of a new two-year fixed deal rose to a seven-year high last month, at 6.64 per cent, compared with an average of just 5.51 per cent just six months ago.
And yesterday, Nationwide announced it was increasing some of its fixed-rate deals by between 0.12 per cent and 0.32 per cent, which would cost a customer with a £150,000 mortgage moving to a new two-year fixed rate an extra £30 a month. RBS, Alliance & Leicester, and Britannia Building Society have all made similar rises. The only ray of light is from HSBC (see above).
Q: Is now a good time to enter the buy-to-let market?
A: A year ago there were more than 3,100 buy-to-let mortgage deals available – now only 852 remain, says Moneyfacts.co.uk. Customers will need a deposit of 20 per cent, and a business plan which ensures rents cover 125 per cent of repayments.
The full article contains 1012 words and appears in The Scotsman newspaper.
