The situation with the banking and lending institutions may throw some people into confusion, which I find is totally understandable. The banking system has had many billions poured into it, yet it doesn?t appear they want to lend any of it to enable people to purchase or develop property. It even appears that lending to people for high street spending has in many cases come to an abrupt end.
In addition we have seen drops in interest rates to levels we have basically never seen before. Yet all this effort into trying to get lenders lending and us the consumer borrowing and ultimately spending our money has failed, 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.
It is an easy mistake to think this is the only reason why banks do not want to lend and that they are clueless as to where they actually stand. However, the full story is more likely that they have frankly come to the conclusion they cannot carry on doing business in the same way as they did before. Or in other words they have had a up to date reality check. For the past several years, their lending has been surplus of 95% with many borrowers being allowed to borrow on a self certification basis.
This means that fundamentally they are disinclined to continue their lending business in this high risk fashion to high risk clients and herein lays the problem. Because they have such enormous amounts of people whom they have lent enormous amount of money too, it is now very complex for them to come across clients able to provide full proof of income and not least with a low loan to value mortgage.
The big question then is if the interest rates are encouragingly low and there is plenty of money in the banks for them to lend to clients, surely we are all rushing out to spend? I think not and that is purely down to their difficulty in essentially finding someone happy to lend 90% to 95% or 80% on a self cert basis.
What does this all mean? I personally think that it may be a good few years before the market for mortgages comes back and that is if it comes back at all. We might have seen an end to the way we used to mortgage our properties. No more self certification and no more high loan to values. The problem is house price inflation over the last five years or so has been fuelled by the ease of these mortgages. We probably should have been unable to get a large proportion of the mortgages we have. So the future could be about waiting till our wages and deposits get up to the levels that house prices actually are, or wait for the property to come down, now that is a scary thought indeed.
In addition we have seen drops in interest rates to levels we have basically never seen before. Yet all this effort into trying to get lenders lending and us the consumer borrowing and ultimately spending our money has failed, 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.
It is an easy mistake to think this is the only reason why banks do not want to lend and that they are clueless as to where they actually stand. However, the full story is more likely that they have frankly come to the conclusion they cannot carry on doing business in the same way as they did before. Or in other words they have had a up to date reality check. For the past several years, their lending has been surplus of 95% with many borrowers being allowed to borrow on a self certification basis.
This means that fundamentally they are disinclined to continue their lending business in this high risk fashion to high risk clients and herein lays the problem. Because they have such enormous amounts of people whom they have lent enormous amount of money too, it is now very complex for them to come across clients able to provide full proof of income and not least with a low loan to value mortgage.
The big question then is if the interest rates are encouragingly low and there is plenty of money in the banks for them to lend to clients, surely we are all rushing out to spend? I think not and that is purely down to their difficulty in essentially finding someone happy to lend 90% to 95% or 80% on a self cert basis.
What does this all mean? I personally think that it may be a good few years before the market for mortgages comes back and that is if it comes back at all. We might have seen an end to the way we used to mortgage our properties. No more self certification and no more high loan to values. The problem is house price inflation over the last five years or so has been fuelled by the ease of these mortgages. We probably should have been unable to get a large proportion of the mortgages we have. So the future could be about waiting till our wages and deposits get up to the levels that house prices actually are, or wait for the property to come down, now that is a scary thought indeed.
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Mortgage Route gives information help and mortgage advice from qualified mortgage brokers along with no obligation mortgage calculators and sourcing tools.
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