Mortgages in the UK are going to get more expensive as lenders are under severe constraints and don’t have access to the kind of range and type of funding that was available at the height of the property boom, it is claimed.
It is a myth that there is a glut of cheap credit set to come on stream that could boost the fragile property market and a return to the days of the days of high loan to value (LTV) mortgages is unlikely, according to the Council of Mortgage Lenders whose members cover 98% of all residential lending in the UK.
High loan to value deals have all but dried up since the credit crisis began, with lenders demanding higher deposits and offering less attractive rates.
But the CML claims that severe funding restraints are ongoing and will result in mortgage products increasing in price rather than falling and the situation is unlikely to ease in the near future. ‘The underlying problem is that we don’t have access to the range and type of funding we used to have,’ said a CML spokesman.
‘Government intervention, namely through lending agreements with semi-nationalised banks, has improved the situation but the constraints on lenders are real,’ he added.
The CML said there was ‘no realistic prospect in the foreseeable future’ of the situation changing rapidly, although lenders are trying to make up for the loss of capacity.
‘Lenders are facing a range of higher costs, including the costs of showing increasing forbearance to more borrowers, and the increased costs of holding more liquid assets and more capital required by the Financial Services Authority,’ the spokesman explained.
‘As lenders will face increasing costs for some time, upward pressure will remain on mortgage spreads on new products.’
But others are urging lenders to lend more especially to firs time buyers who are regarded as the key to a real estate market recovery. Support services firm Sesame said lenders needed to take action to encourage first time buyers into the market. ‘Government-owned banks have recently made some effort to lend at higher loan to values, but what is really needed is a widespread commitment by all lenders to increase to a minimum of 90% LTV, including through intermediaries,’ said John Cupis, managing director of mortgages and general insurance at Sesame.