"Borrowers Fuelling Home Loans Crisis"

Berkeley Consultant's Glen Morris believes lenders should heed advice of FSA

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The latest initiative from the Financial Services Authority is known to the industry as TCF - treating customers fairly.
Whilst this is uppermost in the minds of independent advisers, it appears that lenders, in their attempts to re-jig their business models to improve profits, need to be reminded about TCF.

There have been more than 500 interest rate rises by UK mortgage lenders in recent weeks.

The market now has an undersupply of mortgage products to suit borrowers varying needs.

Many lenders are withdrawing products without any notice whatsoever. Last week, for example, both Barclays (Woolwich) and Nationwide announced immediate product withdrawals with replacements being an average 30 basis points higher.

Many lenders have been attempting to attract "direct" business with more attractive rates than those available from brokers. That's fine, but what we are noticing is that they are increasing rates during the application process or declining applications at the eleventh hour.

Clearly the lenders are now reliant upon retail funding to enable them to lend and the plus side to this is that savers should be able to secure more attractive homes for their money.

Another concern is the tightening of lending policy i.e. reduced loan to value ratios and tighter income multipliers. We have seen the demise of the 100% mortgage and there remain very few lending at 95%. We see this trend continuing and envisage 90% being the maximum loan to value very soon.

Borrowers should not expect any cut in Bank of England Base to be passed on. Only those on "trackers" will benefit.

Lenders have been quick to remove most of these from their product range. Fixed rate borrowing will not drop - the reason being that LIBOR (London inter bank offered rate) remains high and this is how fixed rate lending is obtained.

As a result, many borrowers coming off incentivised rates are being force to remain on their existing lenders base rate (typically 7.5%) because they are unable to remortgage elsewhere. This will undoubtedly lead to more arrears problems and repossessions. Also house prices are bound to be affected due to the greater difficulty in securing mortgage finance.

We believe that the current mortgage drought will continue well into 2009 unless the Government and The Bank of England take action to alleviate the lack of confidence in the wholesale markets and thus improve liquidity in the banking sector.

Glen Morris

April 16, 2008