mortgage lending

Complex property market problems

Published:

JUST how difficult and time-consuming it will be to pick a path to recovery through the credit crunch and the associated economic woes can be seen from the latest figures on mortgage lending. The online financial information group Moneyfacts has revealed that about a quarter of all mortgages available will be granted only to purchasers who can put down a 40% deposit. Further, 60% of the mortgages available require a minimum 25% deposit, and only 148 home loans are currently available to people seeking to deposit just 10%. This effectively excludes all first-time buyers from the property ladder and would appear to show that the lenders are not keeping their part of the bargain struck informally when the prime minister announced the multibillion-pound bailout of the banking industry late last year. At that time, he made it quite clear that the funds were being made available on the strict understanding that the institutions would resume lending to each other and, in turn, the general public.

Yet much of the criticism directed at banks was that they engineered much of the difficulties in which they found themselves by reckless lending to people who had no real prospect of meeting their repayments once the economic boom slowed. Should they now also be criticised for a more cautious approach to a financial downturn which, by general agreement, is not yet at its worst? This conundrum demonstrates the complexity of the problems in the property market and the vicious circle in which it finds itself. Property prices start to fall; banks will not lend because of the fears of negative equity; people cannot buy because they are unable to obtain a mortgage; people cannot sell; property prices fall further. And so it continues until the storm subsides. The problem is that there is currently no break in the clouds, let alone a silver lining.