Is the mortgage situation tragic yet?
Is the mortgage situation tragic yet?
Is the mortgage situation tragic yet?Today BBC Business News published an interesting article about the seemingly tragic situation for mortgage lenders in UK. The figures shown indicate that during the last decade number of first time mortgage applications were steadily decreasing from a whopping 90 000 in January 2003 to just over 10 000 in January 2011.
Quite frankly, if the data shown is accurate (and you would expect information published by BBC to be very accurate) it means that the British economy is still far from recovery and while the above numbers only include first time applications, the market as a whole does not look much better at all. According to the article, the total number of mortgage loans in January this year fell to just over 28 thousand which is 12% less than during the corresponding period year before.
We're told that credit crunch is over and economy is turning for better again but is it really the case? The sheer number of approved loans clearly indicate two possible trends which are taking place right now: it's either lower number of applications being submitted due to uncertainty of job market or an increasingly selective approval process employed by the banks. Or both.
It seems to me that 25 year long financial commitment scares potential buyers off quite a lot right now. Lenders have no mercy over late payments and renting professionals simply opt for remaining tenants until the situation clarifies and it's safe to apply for mortgage without the prospect of being presented with a P45 due to organisational restructuring'. This may, however, work in the buyers favor in the long term.
While the application process in understandably strict now because of the past high number of sub-prime mortgages which, apparently, caused the credit crunch to begin with - there are some signs of things getting better.
Even now, as BBC reports, the typical initial deposit has dropped from 25% to only 20% which in terms of real money means that mortgage in UK has become less expensive for the applicants in the initial period. Time will show whether this move will save mortgage brokers from going bust, but if you ask me, preferential rates for first time buyers and reducing costs associated with PMI (Private Mortgage Insurance) would be very welcome. This would certainly eat a lot into lenders' profit margins but if the trend carries on there will be no profits for them to begin with.