Mortgages face tight squeeze
By Jane Croft
Financial Times Published: October 18 2007 21:59 | Last updated: October 18 2007 21:59
While Thursday¹s figures from the Council of Mortgage Lenders have yet to register the impact of the credit squeeze, there is already ample evidence that banks have been tightening lending criteria.
Analysts estimate that the UK¹s £300bn annual mortgage market may be reduced by £50bn this year partly because Northern Rock, previously the UK¹s fifth-largest mortgage lender, has greatly scaled back its lending.
All areas of the mortgage market have been hit, but specialist areas such as buy-to-let mortgages and subprime loans offered to customers with patchy credit histories have taken the most significant hit.
Both Paragon and Bradford & Bingley, which account for about 30 per cent of the UK buy-to-let market, have recently pulled certain products and replaced them with higher-rate mortgages.
Paragon has increased rates on its home loans by about 30 basis points. B&B said it had increased some fixed-rate buy-to-let mortgages by 25 basis points, reflecting conditions in the wholesale market.
B&B said the higher rates reflected its need to protect existing standards of service to borrowers, so that it was not swamped with new applications as other banks withdrew from the market.
Jonathan Pierce, a Credit Suisse analyst, foresees a big reduction in capacity in the mortgage market, particularly in areas such as buy-to-let and subprime. He said: ³A big problem, we think, is the marginal mortgage market. In particular, we estimate that buy-to-let and subprime have accounted for about 20 per cent of new lending in the UK market over the last few years.²
Many subprime mortgage rates have risen from about 7 per cent in July to between 8.25 and 9.25 per cent now. Some rates have jumped as high as 11.25 per cent.
Even the mainstream mortgage market has not been immune to the pressures. HBOS, the UK¹s biggest mortgage lender, has decided to rein back lending this year.
Fixed-rate mortgages and tracker rates across the mainstream mortgage market have risen by about 25 basis points in the past month. Lenders say they have not cut back on income multiples or loan-to-value ratios, although certain groups, such as first-time buyers, will find it as difficult as ever to get a mortgage without a large deposit.