Some people are worried there could be a massive mortgage famine in 2012. Interest could jump too. Should we worry? Ed Bowsher investigates....
Some people are worried there could be a massive mortgage famine in 2012. Interest could jump too. Should we worry? Ed Bowsher investigates....
The financial crisis in 2008 was truly shocking – I expect most of us will never forget it. But the good news is that we’re through the worst. The credit crunch is over. Right? Well, when it comes to mortgages, I fear there’s more crunch to come. In fact, the UK could be sitting on a massive mortgage timebomb.
It could have all been much worse. That’s because banks weren’t forced to rely purely on ordinary savers. The government and the Bank of England stepped in and filled some of the gap with two emergency schemes.Trouble is, these schemes are coming to an end. In fact, the Bank of England’s scheme will start winding down next year and will be gone by April 2012 – then the banks will have lost access to mortgage funding worth £185 billion.
So why does this matter?
Ed Stansfield, property economist: “The reason it matters is because lenders are still finding it difficult and expensive to raise new wholesale funds........now, of course, if lenders have to repay £185 billion that they’ve borrowed through the special liquidity scheme with no other funds to replace that then that’s going to severely restrict in my opinion the availability of mortgage credit.”
In other words, mortgages will become more expensive and there will be a massive mortgage shortage. That sounds horrendous. But if things will be so bad, wouldn’t it be better to extend the scheme? Right now, the Bank of England says very firmly it’s going to stick to the schedule. But could the bank change its mind?
Ed Stansfield: “I think it’s very difficult to know this far in advance what’s going to happen, clearly what the government wants to do and the Bank of England want to, is withdraw the crutch from the mortgage lending industry to help it get back on its own two feet, and that’s got to be something, a common sense objective. Of course what it doesn’t want to do is undermine the housing market recovery, initiate a kind of new collapse and a new squeeze on the mortgage credit, which could threaten the wider economic recovery. It’s very hard to tell”
So what do I think will happen?
Politicians won’t like the idea of a new mortgage crisis, so they’ll certainly be tempted to give more help to the banks. They could save face by giving the scheme a new name and offer less generous terms whilst still providing support.
On the other hand, I think most of us are pretty fed up with sob stories from the banks so there’s a real chance that the powers that be will decide to be tough and not give any more support for mortage lending. If that happens, house prices will almost certainly fall and 2012 could be a very interesting year indeed.