The credit crunch and mortgages

Most of us are too familiar with the daunting term ‘global credit crunch’ these days, but before last summer most of us had never even heard of the term.

The global credit crunch made its way to the UK last summer from the United States, and since then has been causing havoc in the financial sectors, and affecting lenders and consumers, as well as other areas of industry.

One of the worst affected areas of finance has been the mortgage industry, and since the onset of the global credit crunch the mortgage lending sector has undergone some radical changes that have left many consumers out in the cold and have had a dramatic impact on the housing market as well as on the economy in general.

Some consumer groups have been affected more seriously than others, such as first time buyers and those with bad credit, but in some ways most consumers have been affected in one way or another.

Last summer, before the global credit crunch came our way, there were over fifteen thousand different mortgage products on the market, so consumers had more than enough choice and some very good value deals to choose from.

However, in the space of six months the number of mortgages had plummeted by two thirds, with lenders having to pull various mortgage products from the shelves because they were forced to cut back on mortgage lending due to lack of funds.

For first time buyers the news has been particularly bad when it comes to mortgages. First of all lenders pulled 125% mortgage from the shelves. These have been popular amongst first time buyers for some time, allowing them to raise the money to buy their property and well as for other related fees and purchases, which meant that they needed no upfront deposit or other fees.

Shortly after this lenders pulled 100% mortgages off the shelves, which meant that all first time buyers now needed to have at least a 5% deposit, which is a lot of money given the price of a property in the UK.

To make matters worse lenders have now started to exercise caution with 5% deposit as well, and some are demanding higher deposits from borrowers, which means that first time buyers may need to find even more money upfront, which for most is difficult because they have no previous property from which to take equity.

Those with damaged credit are also suffering, as lenders have really tightened up on their lending criteria, and are focusing their efforts on those with very good credit in this uncertain financial climate.

With many people unable to get their hands on an affordable mortgage, sales of properties have really slowed down, and estate agents have reported very poor sales figures, even though property prices are falling.

This is further driving down the value of properties, and many people who bought properties over recent years when prices were very high face falling into negative equity.