Fewer and fewer mortgages

Just as we have seen a rush by mortgage companies to put their rates up, so they are not left as the cheapest on offer facing a deluge of applicants, so we are now seeing a rush to withdraw mortgage products altogether as mortgage companies struggle with the volume of demand.

Individual companies are right to stress they are withdrawing products and increasing prices because they are inundated in the wake of Northern Rock’s withdrawal from the market, not because they have run out of money. The system as a whole, however, is cutting back on its volumes because it is rightly being more cautious about how much money it can raise from different sources. The Credit Crunch is having a real impact at last – it means less money for banks and Building Societies as a whole to lend, which means fewer mortgages, lower proportions of the house value being advanced and higher interest rates (relative to market rates).
This in turn will mean lower house prices.

The rest is covered by yesterday’s post entitled “Are all mortgages wicked?”

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  1. Letters From A Tory
    Posted April 3, 2008 at 10:46 am | Permalink

    I think the big question on everyone's minds now is how low can house prices go? There's a part of me which says that demand will eventually steady the ship, but if the downward momentum stays with us then where will it end?

  2. haddock
    Posted April 3, 2008 at 12:35 pm | Permalink

    I suspect a lot of our financial woes started when services started to be called 'products'.
    Much of the mortgage money has been spent, not on housing, but to fund an extravagant lifestyle through re-mortgaging. This works wonders for the nonsensical notion of growth but not for economic stability.
    Your last piece did not mention immigration and the huge affect this has had on housing supply, surely a very large factor in supply and demand for housing – especially at the lower end of the market.

  3. Stuart Fairney
    Posted April 3, 2008 at 1:09 pm | Permalink

    I think you maybe confusing the suspension of offers for reasons of logistics, with withdrawl of offers for commercial reasons.

  4. tim holden
    Posted April 3, 2008 at 1:15 pm | Permalink

    Northern Rock, "our" bank, taken into "public ownership", has initiated a different form of instability. The long lines of depositors waiting to extract their savings is replaced by long lines of homeowners waiting to renew their mortgages. Interference with the market has created another mess.

  5. Matthew Reynolds
    Posted April 3, 2008 at 7:28 pm | Permalink

    What is needed is cuts in stamp duty to boost the housing market & raise share prices at a time when falling property prices are hurting the real economy and we need the Square Mile to do well so that a recession can be warded off . The first £500,000 of all property transactions must be 100% stamp duty free while rates are all slashed to 1%. Stamp duty on share should be cut by 0.1% a year for five years until it is axed. The first could be funded by closing a few QUANGO's down & the second could be financed by raising landfil duty & fly tipping fines to boost recycling and help the environment ( the UK is running out of landfil space ). Green growth is needed so that our prosperity does not ruin the lives of future generations and axing a few pointless Labour jobsworths to fund boosting social mobility is hardly a bad idea !

  6. Steven_L
    Posted April 4, 2008 at 2:56 am | Permalink

    In my view, the only way to sustain house price inflation far exceeding wages (which most homeowners seemed to want and expect a year or so ago) was shared equity – to keep the supply of first time buyer coming in.

    Now that the analysts at mortgage providers obviously perceive a risk of house price falls, no lender will want to take the shared equity risk either I expect.

    Hopefully (in my view) house prices will fall (even if it means a period of recession) and come back to more sensible levels in terms of earnings. The trend over the last few years has been unsustainable unless we want to ultimately hand over ownership of our homes to financial institutions.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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