All this money and we are still in a mess. | Mortgage

All this money and we are still in a mess.

by ChrisClare

Some people might be somewhat confused lately by the whole banking and lending situation, and I have to say I completely understand why. We have seen billions upon billions pumped into the banking system and for some reason we still have a situation where it appears lenders don't want to lend money so people can't buy property or develop what they have or even get extra borrowing to spend on the high street.

Moreover, efforts in the shape of reduced interest rates, the like of which we have never seen before, has failed to encourage the lenders to lend, or the consumer to borrow money in order for them to spend. The question here is simply why?

Well it is no great secret that banks are currently in what can only be described as a bit of a crisis at the moment. They have very little idea what their assets are and furthermore they have even less idea what their liabilities are.

For the most part this has been caused through their indecisiveness as to which will be a sound loan and which will not. In other words, they are trying to avoid liability to their businesses caused through a bad lending, with the obvious consequence that they are reluctant to lend for fear of what will happen.

One assumption people can make is that that is the only reason banks are reluctant to lend is due to the fact they are unsure of their position, but that would be slightly off the mark as it is not the full story. It is more likely they have had a rude awakening from the way they administered overindulgent lending over the past few years which was further compounded by lending on a self certification basis to borrowers; lending well in excess of 95%.

Basically, these actions have caused them to be unwilling to lend in this fashion as it has led to their business being exceptionally risky. This is further problematic for them due to difficulties in locating non risky clients who can show full proof of income and with a low loan to value mortgage, all because of their habit of past high lending. Now they have woken up to this has left them averse to further lending in this fashion.

So banks may have the money to lend to you and I, interest rates may indeed be at such a favourable level for us to go out and "fill our boots" for want of a better expression. But can you actually find a lender willing to lend you 90% to 95% or 80% on a self cert basis? I have to be honest I don't think so.

In conclusion, my personal opinion is that the mortgage market, if it returns at all, could well take some years before we see a any changes. These changes may be in the way we mortgage our properties leaving behind high loan to values and self certification. Indeed, the ease with which these mortgages have been recently been churned out has resulted in the inflation of the property market over the last few years. It?s arguably a good reason why many of these mortgages should never have been obtained. Our future prospects could be about biding our time till incomes and deposits reach levels compatible with house prices or a more a chilling thought is to simply wait till property prices decrease.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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