Worst mortgage conditions for a decade

If you want to buy a house, things are starting to look a bit ropey.

The housing market may have staged a somewhat unlikely recovery over the past year, but the green shoots of recovery are well and truly withdrawing for the winter. Even for a housing optimist like me, it’s impossible to ignore the signs that things are about to get very tricky indeed.

Mortgage lending plummets

According to the Council of Mortgage Lenders (CML), the lender trade body, gross mortgage lending in August was just £11.4bn. That represents a fall of 14% from £13.3bn in July, and 6% from the £12.1bn lent in August last year.

In fact, it is the lowest August total since 2000, a full decade ago, when lending volumes reached £11.1bn.

Why has mortgage lending fallen so far? And what does it mean for borrowers?

A weak market

According to the CML, it's not just August - the whole of the second half of 2010 is going to be tough. It’s worth remembering that August figures always see a drop-off in lending due to seasonal factors, but this fall goes well beyond that usual excuse.

One factor is that while property sales are above the levels of the past few years, historically they are still subdued. What’s more, access to funds is still limited, particularly as many lenders now face having to pay back various Government support schemes, and instead turn to the market for funding, which is inevitably more expensive.

Perhaps even more staggering is that the vast majority of the money that is lent - 82% - is coming from just five lenders. That’s just not healthy, and things aren’t going to improve in the mortgage market unless that changes.

Confidence is low

What’s more, it’s not simply that the lenders are being stubborn and closed for business – confidence among those who would like to own their own home, or move up the chain, is pretty dismal too.

According to the latest Housing Market Sentiment survey from Zoopla.co.uk, the number of homeowners expecting house price rises in the next six months (and you have to admire their optimism) has fallen from 78% to  63% in the space of a quarter. Indeed, the number expecting prices to fall further has jumped from one in ten to one in four!

With such caution in the air, I think it’s no wonder lending is falling.

Are things about to get worse?

At the risk of adding insult to injury, there’s a pretty good chance things are about to get even worse, lending-wise.

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The financial regulator, the FSA, has proposed a series of changes to ensure lenders are a bit more responsible with their lending, in order to avoid some of the issues of the past few years.

However, according to the CML such changes go way too far. It has looked at how the proposals would have impacted previous lending, and has found that if they had been in effect since 2005, around 3.8 million good loans, to borrowers who have had no problems with their repayments, would likely not have been granted.

As the CML admits, the market is in a different place now, and so the impact of these new rules on new lending is unlikely to be as high. However, it’s clear there will be an impact, making it even harder for borrowers to access funding than it is already.

When you consider there are already secret new rules which may cause house price falls, coupled with further new rules which will push mortgage rates up, things look pretty grim.

Get a move on

Clearly, things are tough enough, but are only likely to get more restrictive. Obviously, that means that if you’re planning to buy a property in the immediate future, it probably makes sense to get a move on.

However, in my view, it just adds to the need to utilise independent financial advice. Mortgage brokers are best placed to work out exactly which lenders are most likely to accept your application. To make use of our fee-free mortgage team, head over to the mortgage centre where you can pick their brains online, via email or over the phone.

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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.