As lenders withdraw their mortgage products from the market left, right and centre, the Bank of England predict worse is to come.
In a week that has seen the number of mortgage deals available on the market shrink by up to 20%*, things are looking bleak for the borrower.
First Direct set the trend by temporarily withdrawing all of its mortgage products from the market after being swamped with applications for its competitive deals. The Co-op soon followed suit, suspending all availability of its 2 year fixed rate products for the foreseeable future while Skipton, West Bromwich, and Salt building societies all pulled a number of their deals.
This is bad news for first time buyers and home owners alike as reduced competition in an already narrow market will mean that lenders can afford to be increasingly fussy not only about who they lend too but also about the rates they charge and the deposits they require.
What’s more, according to the Bank of England, the financial pressures currently gripping the mortgage market are unlikely to alleviate any time soon, with conditions predicted to deteriorate further over the next three months.In their quarterly Credit Conditions Survey the Bank of England revealed that while demand for credit has remained relatively unchanged through the first three months of 2008, the availability of both mortgages and unsecured products such as personal loans, overdrafts and credit cards has reduced significantly, while during this time the cost of borrowing has risen considerably.
On the basis of their findings, they predict that the next few months are likely to be particularly tough for homeowners coming to the end of their fixed rate terms as, with affordable credit increasingly difficult to come by more and more households will be left struggling and facing the risk of repossession.
These findings have led many to speculate that, after holding interest rates in March, the Monetary Policy Committee will be forced to implement a rate cut when they meet next week as a protective measure against the tightening economic conditions. However, as the cost of the inter-bank borrowing still remains high and shows no signs of dropping, whether any rate cut will be of direct benefit to the borrower remains to be seem.
Nevertheless, despite this gloomy outlook there are still competitive deals to be had but if you're in the market for a new mortgage it’s important to move quickly. By starting early and shopping around before your current deal expires, you should be able to secure an affordable rate by the time you’re ready to switch.
*Research by Moneyfacts.co.uk
