Bank finance still tight
The Bank of England says that the mortgage finance markets are still tight.
The mortgage bond market looks set to remain tight for the rest of the year, according to the Bank of England. That means that homebuyers with small deposits will continue to struggle to get the best mortgages.
The Bank's latest quarterly bulletin said that bank funding markets had improved a little at the beginning of the year but 'became more difficult again during late January and February...overall liquidity conditions have yet to normalise to any significant degree.'
What's more, Libor - which measures the rate of interest at which banks lend to each other - is still on the high side. In normal times, Libor is around the same level as the Bank of England's base rate, but that relationship changed in 2007, and things still haven't returned to normal now. 3-month Sterling Libor is currently at 1.83%, well ahead of the base rate at 0.5%.
In other words, banks are still reluctant to lend to each other. And if banks can't borrow from each other, they're only going to want to lend to the safer mortgage borrowers.
That's a great shame for first-time buyers, but at least they can comfort themselves that house prices probably still have further to fall. So the best strategy is to save aggressively to build a decent deposit and hopefully you'll be ready to buy a home when property prices are close to the bottom.
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