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“Thank you sir, have a nice day.”
What, was that it? Surely there was something she wanted to add? Perhaps, “can I offer you some information on our latest list of personal loans, sir?”; or “have you heard about the new 15.9% credit card on offer to all our customers?”
But not this time. If there’s been one good thing about the credit crunch, it’s that I can now go into the Post Office, post a letter and get out without the hassle of being flogged a new loan at 7.9% APR.
Of course, my letter may never arrive, but that’s a different story…
The chances are that if you’ve visited your bank any time recently, you haven’t come walking out again laden down with a new variable rate mortgage. The banks are becoming a lot more cautious about how much money they lend, and to whom they give it. And that means they’ve started slashing back on the vast number of mortgage products they once offered.
According to moneyfacts.com, there are 40% less mortgage products on the market today than there were three months ago. The sub-prime market has felt the squeeze hardest. Back in July, there were 1,383 mortgage products on the market for sub-prime residential clients. This month, there are 392. That’s a 72% reduction.
Looking to the US where too much money was lent to too many of the wrong kind of people, UK banks have woken up to their own misdemeanours and started vetting the people they give money to. No more self-certification mortgage applications from the once overly-generous lending community.
Already, the number of rejected mortgage applications has risen by almost 60% over the past 6 months. 738,000 home loan applications were turned down in the half-year to October, says price comparison service MoneyExpert.com. That’s 59% up on the previous six months.
Which will make buying a property even more difficult for those people already struggling to get on the ladder because of higher interest rates. The rise from 4.5% to 5.75%, has added around £1,320 the annual cost of a £150,000 mortgage. ‘Life is tough at the moment if you’re applying for a mortgage,’ said Sean Gardner, Chief Executive of Moneyexpert.com. ‘The financial environment is far more stringent than in the summer of last year and people need to be prepared for rejection.’
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Not to mention falling prices. Last week, the IMF warned that house prices in the UK are 40% overvalued. Looking at the key driving forces that influence higher prices, including borrowing costs and rising incomes, the Washington DC based organisation found that only 60% of the rise in house prices since 1997 could be put down to these fundamental factors.
Of course, you didn’t need the IMF to tell you that. The UK housing market is already looking very fragile. Prices fell for the first time in nine months in September, according to lender HBOS. The average price of a home fell 0.6% to £198,500 in September from a month earlier, it said. That was against a 0.3% rise in August.
Don’t worry though, say estate agents. If the credit crunch was to exacerbate problems in the market, central banks both here and in North America will start cutting rates. But lower rates don’t necessarily mean cheaper mortgages. As Melanie Bien at Savills Private Finance points out in the Times, “If the Bank of England cuts interest rates, some lenders might use that opportunity to widen their margins and not pass the full rate reduction on to borrowers.”
So the question now is not “will prices fall”, but how fast they’ll do so.
Nationwide has already revised down its forecasts for house prices growth next year, saying that growth will fall to 0% for 2008 from a previous estimate of 3% to 4%. And as figures from other forecasters begin to point in the same direction, it’s clear that for anyone still holding on to buy-to-let investments, now may well be the best time to get out of the housing market – even if capital gains tax is a bit steeper than you’d pay next April.