The banks turn and flee

March 22nd, 2008

The changing circumstances in the global finance market are being passed on to individual lenders in the UK loan market. Terms and conditions are being presented now that would have been unheard of as little as a year ago.

For example, a growing number of mortgage lenders are restricting home loans to customers outside certain geographic areas or are capping the maximum amounts homeowners can borrow at £350,000.

Nationwide, one of the UK’s biggest lenders, has said that it will stop lending to first-time buyers who want to take out self-certified mortgages where proof of income is not required. It is also stopping lending to all first-time buy-to-let landlords. In addition Nationwide, which lends to these specialist segments through its two divisions Mortgage Works and UCB, is capping the maximum it will lend to any borrower taking out self-certified mortgages to £350,000.

For buy-to-let landlords it is capping the loan per property to £350,000 and it has signalled it is less willing to take landlords with large property portfolios of more than £1m.

Other smaller building societies are not lending to customers who are outside a certain geographic area. Holmesdale Building Society has restricted its lending area to Surrey, Sussex, Kent and Hampshire. Melton Mowbray has restricted its lending area to business within a 50 mile radius and financial advisers within 30 miles. Newbury Building Society has also restricted its lending area to surrounding counties only.

A number of other building societies, including the Bath Building Society and Earl Shilton Building Society, have temporarily withdrawn their entire product range except for their standard variable rate mortgages to avoid being swamped by inquiries

Meanwhile, new research from Protiviti, the independent risk consulting company, reveals that mortgage brokers expect the situation in the residential mortgage market to deteriorate. Indeed, some 85 per cent believe that many people will find it difficult to find a mortgage this year.

Some borrowers have agreed mortgage deals only to see them disappear from the market hours before completing the applications. The root of the problem is unprecedented volatility in the wholesale markets, which is making it more expensive for banks to obtain funding.

It is not just the fact of these changes but the speed at which they are taking place that is significant. Banks are withdrawing from positions at speeds anyone who has waited for a cheque to clear would have thought impossible. It will be interesting to see how this situation develops over the next few months.

This entry was posted on Saturday, March 22nd, 2008 at 2:26 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

The banks turn and flee

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