Shortage of Mortgage Funds
In the UK it is becoming increasingly difficult to obtain mortgages. First Direct suspended new mortgages recently as have Halifax. The number of available mortgages has been reduced by nearly 40% this week. This is because of the credit crunch and the non-availibility of funds on the wholesale interbank market. This has forced the rise in the cost of this money which is being passed on to the consumer. First Direct claim that they have suspended their new mortgages because they cannot cope with the demand and need to suspend issuing new loans to be able to deal with the backlog. In the UK part of the demand arises from lenders coming off discounted fixed products and looking for cheap alternatives. These are becoming less and less available. However the problem is not only for people refinancing but also for purchasers. According to the Financial Times one third of housing deals are falling through because of the non-availibility of funds..
In Ireland while house prices are still falling the rate of the reduction is less than what it was. The fall was 1.2% in November, 1.4% in December, .8% in January and .7% in February. However if mortgages become as unavailable as they are in the UK and if the cost of lending rises this will obviously add to the problems with the housing market and can only lead to a more rapid rate of decrease in the cost of property.
Problems in Obtaining Mortgages
Credit is becoming more difficult to obtain because of the rise in the cost of inter-bank borrowing since last Autumn. This has led to a rise in the cost of money to borrowers. People on tracker mortgages won’t be affected. However people looking for new tracker mortgages will have to pay more. As the credit crunch continues the cost of borrowing will rise further. As a consequence lending criteria will get stricter and the loan to value ratio will fall. In Britain some of the lenders, such as First Direct, have stopped lending because of the demand for their products. This arose with people coming off fixed rates who were looking for attractive alternatives. First Direct became inundated with applications. It was a question of either increasing interest rates dramatically to discourage applicants or withdrawing loans to new customers to enable them to clear the backlog. However in Ireland the demand for residential mortgages is at its lowest in 14 years according to Central Bank statistics. This decline reflects the decline in house sales as shown by the recent figures published by Permanent TSB and ESRI. However these figures show that the rate of decline was not as sharp in January/February as it was in November/December.
