Many recent surveys and research reports highlight a troubling fact. The housing market in the UK – already battered by crumbling prices and a lack of affordable loans – is likely to continue its downward slide.
The mortgage and property turmoil that began in the USA late last year has gotten progressively worse, despite crisis intervention at all levels of the government. This month housing prices in the USA fell sharply again, and now the UK is experiencing an almost identical pattern of worsening economic circumstances. In response to the growing losses from their loan businesses, major UK banks and mortgage companies have scaled back or entirely eliminated many of their most popular loan products. They are taking lessons from USA banks that recently withdrew existing lines of credit from hundreds of thousands of customers, cutting off their financial lifelines almost overnight.
• Last month the Council of Mortgage Lenders (CML) predicted that house prices would fall by 7% by the end of this year, but more recent forecasts from Bankers HBOS predict that this figure could actually reach 9%. The CML also expects to see housing transactions hit a low level not seen in the UK since the 1970s.
• Howard Archer, chief UK economist at Global Insight, told the BBC that house buying remains under severe pressure from the “damaging combination of stretched affordability and tight lending conditions.”
• The BBC reports increased pressure on household finances, tighter lending criteria, and tighter limits on home equity withdrawal loans.
• The number of remortgage applications has spiked, although many will be turned down due to new, more unforgiving remortgage guidelines.
At a time when consumers desperately need an infusion of money, they find that credit has virtually dried up – except for so-called bad credit remortgage products. Lenders who offer these “bespoke” style loans tailor them specifically to fit the needs of people who have damaged credit. Because they only deal with bad credit clients, their entire business model is structured and designed toward offering loans to consumers who have been turned down and rejected by conventional banks and traditional mortgage companies.
The best way to overcome mortgage and other financial problems, experts and credit counselors say, is to remortgage into a safer, more reliable and manageable loan. Millions of homeowners who have adjustable rate mortgages, for example, started off with cheap and easy loans but have watched their monthly payments double or triple within a matter of weeks as these tricky mortgages “reset” to much higher interest rates.
When they try to pay off these treacherous loans through a remortgage – a wise and simple strategy – they unfortunately find that highstreet lenders are not interested in approving their remortgages. With home values falling, mortgage companies are reluctant to lend and so homeowners find themselves trapped in high rate mortgage agreements with no way out, no exit plan, and no light at the end of the tunnel.
As a result, bad credit loan providers are currently thriving despite the mortgage turmoil experienced by other lenders. That’s because they have built-in risk control measures and financial policies that work even if people are considered high-risk borrowers with terrible credit scores. As the situation gets worse, their customer base grows - because more homeowners give them business that was refused by stodgier, more conservative lenders.
