Government efforts to ease the financial strain on the mortgage market were ignored by building society Nationwide, as they announced plans severely tighten its lending criteria for new customers.
Despite a £50 billion cash injection from the Bank of England to help the tension surrounding the money markets, Nationwide declared that mortgage borrowers would have to double their minimum deposit to 10 per cent for them to be considered for most of their products.
Nationwide spokeswoman, Zoë Stevens said, “The mortgage market will no transform overnight and we need to be able to manage our business in a prudent way while the Special Liquidity Scheme takes effect. These changes will allow us to maintain control of the volume of business the Society is attracting, while enabling us to continue offering our full range of mortgages to our existing members in a controlled way.”
The Special Liquidity Scheme (SLS) was a rescue package set up to try and prevent lenders from having to cut their maximum loan amounts on offer to new customers. However, Nationwide only considered mortgage applications from people if the funding was for 90 per cent or less of the property value, on all but two of their products. They also reduced their £1 million maximum loan amount by half, to £500,000 for all new customers.
Nationwide weren’t the only firm squeezing their lending criteria as Abbey introduced a rule where interest only loans would be available up to a value of 50 per cent unless the customer had a linked repayment channel such as an ISA. They also said that borrowers of more than 90 per cent loans of their property value would be required to produce one month’s bank statements in addition to the usual credit checks.
Financial experts had hoped that the Special Liquidity Scheme would cause a drop in the rate at which banks lend to one another, which would result in an easing of rates and conditions for customers.
This government move though seemed to have failed with borrowers being warned that their greatest worry now is actually being accepted for a mortgage, rather than being bale to afford one.
A spokesman for money comparison site Moneyexpert.com, Sean Gardner said, “Availability is the biggest hurdle despite all the Government efforts to get lenders lending. If you don’t have a substantial deposit or equity in your house, then your choices are now severely limited. When disposable income is already at breaking point for many, it is frankly impossible to see how those with limited savings will find a way to get a foothold on the property ladder.”
The Royal Institute of Chartered Surveyors March 2008 survey revealed that the rate at which house prices had fallen during this month had been the lowest on record. Their figures showed that 78.5 per cent more chartered surveyors had seen a fall in house prices rather than a rise. This was an increase from 65.7 per cent for February 2008.
A Royal Institution of Chartered Surveyors (Rics) spokesman, Jeremy Leaf said, “Settlement is at a very low ebb and will continue to remain depressed while the economy suffers from this unique liquidity blight. The slowdown in prices is directly attributable to a lack of available finance which has hit demand.”
