It’s a depressing time for anyone absolutely determined to buy a house this year. Why? Because the mortgage market is shrinking fast. In the last three months, says Cliff D’Arcy on Fool.co.uk, UK lenders have withdrawn 6,400 different mortgage products and have almost entirely deserted the market for loans of more than 100% of the value of a property.
Abbey, Alliance & Leicester and Coventry Building Society all pulled out a few weeks ago and this week Northern Rock has finally pulled its frightening “Together” mortgage. This had allowed thousands of people with not a penny to their names to borrow up to 125% of the value of their house – spending anything not needed for the house purchase on whatever they liked, from the brand new kitchens we all seem so keen on to the much-loved (by finance companies) “holiday of a lifetime”.
The result is that these days anyone wanting a mortgage needs a deposit. And if you want any of the better deals on the market, you need a big one. Nearly all lenders now demand at least 5% and Nationwide building society has jut announced that it requires buyers to stump up a deposit of 25% or more in order to secure its best rates. No wonder the number of loans granted for actual house purchases was a mere 44,288 in January – down around 31% on the same time last year, and one of the lowest figures on record.
Worse for buyers is the fact that even if they do qualify for them, best rates aren’t quite what they once were. With banks now desperate actually to make money rather than just grab market share, prices are on the up. The interest rate on the average fixed-rate loan expiring in 2008 is around 5%, says George Hay on Breakingviews. The new rates are 1.3% higher. It’s the same for tracker mortgages. A mere six months ago, you could get a tracker mortgage priced just below the Bank of England’s base rate. No more: today they are more like 0.5% above the base rate.
So what’s a buyer to do? There’s a really simple answer to this one: don’t buy a house. The small falls in prices we have seen over the last few months – house prices fell 0.2% in February, says Hometrack – have not yet made any difference to the fact that UK houses are expensive on every measure there is.
According to Alistair Stewart of Dresdner Klienwort Wasserstein, the UK housing market is a “house of cards” set to implode after years of reckless mortgage lending and widespread fraud. MoneyWeek is in full agreement with these sentiments. The truth is that if I was a first-time buyer, instead of cursing the banks for pulling their products, I’d be thanking them for preventing me from blighting my future by buying an overpriced house and spending the next five years living with the hell of negative equity.