What has happened…?
What has happened…?
Since the Credit Crunch started in August 2007 a number of financial institutions have either withdrawn from the UK lending market or restricted their lending practices. The first lenders to withdraw from the market were American Banks with a UK subsidiary and these lenders primarily operated in the Sub Prime or Adverse credit market. This means that they were providing loans for clients with mortgage arrears or had defaulted on other credit payments.
These lenders were:-
GMAC RFC – Funded by General Motors
Edeus – Funded by Oakwood Home loans
Advantage Home loans – Funded by Morgan Stanley
Preferred Mortgages – Funded by Lehman Brothers
Southern Pacific Mortgages – Funded by Lehman Brothers
Mortgages PLC – Funded by Merill Lynch
Wave – Funded by Merill Lynch
DB Mortgages – Funded by Deutsche Bank
As you can see above the majority of lenders that are no longer lending in the UK were funded by large American Corporations. They joined the adverse lending market chasing big margins and as soon as the market turned they disappeared.
In the UK we have seen the nationalisation of both Northern Rock and Bradford & Bingley to maintain their existence. We have also seen the proposed merger of HBOS with Lloyds TSB to guarantee their long term survival and some smaller building societies have merged (Cheshire and Derbyshire joining ranks with Nationwide) to remain competitive.
What remains is a range of cautious lenders who are happy to compete in the low loan to value remortgage arena. The braver lenders will still allow you to borrow 95% of a property’s value if you have a good credit rating. The Buy To Let market is very uncompetitive at present as this is deemed higher risk and commercial lending is constantly being priced upwards as lenders shy away from taking risks on new businesses or developments.
Its is worth advising that when the FSA reviewed lending institutions in the wakes of the Northern Rock disaster they put in place measures to ensure banks were less exposed. In simple terms the FSA now requires that all lenders have £1.00 in savings for every £1.00 they lend for a residential mortgage. If they want to lend for Buy to Let or Commercial reasons then they must have £2.00 in savings for every £1.00 they lend due to the higher risk – now you can see why lenders aren’t so keen on Buy to Let or commercial loans at present!
Finally, now that Bradford and Bingley have been rescued all lenders have to pay to fund the rescue through contributing to the Financial Services Compensation Scheme. The amount they pay is proportionate to the size of the lending institution but it does come as an unwelcome burden to all lenders. Lenders will need to recoup this outlay so expect margins to be raised in the short to medium term to compensate
We are getting there and the light at the end of the credit crunch tunnel is getting brighter. Systems are in place to protect us and the Bank of England will reduce Base Rate to ease affordability. As rates come down though margins will rise and there will be little evidence of an improvement in affordability until such time as rates have dropped by say 0.75% or more. As an eternal optimist I can say that things are not going to get much worse although we will have stagnant times ahead.
If you are interested in discussing this further please call Mark Wadmore 01454 205120
