The availability of mortgages is expected to decline further in the coming months, with an ensuing rise in average mortgage cost. The Bank of England?s (BoE) most recent quarterly credit survey announced there will be further constrictions on borrowers as many lenders will make secured credit even less available than in the beginning of the year. Even unsecured lending, such as through credit cards, is also expected to drop in availability as a result of the increasing credit crunch.
About 31 per cent more lenders claimed they decreased their lending amounts in the months up to mid-March than those who increased their lending. Furthermore, around 43 per cent more lenders are expected to reduce their mortgage lending in the following quarter. Lenders claim to have reduced mortgage availability through a combination of contracting their credit scoring and lessening their maximum loan to value ratios they had previously advanced. Amplified concerns surrounding the housing market, as well as the banks' increased difficulty in raising funds because of the ?credit crunch? have influenced this decrease in mortgage lending. As Moneyfacts.co.uk has exposed through extensive research, all of these factors have resulted in a 60 per cent decrease of mortgage deals since the same time last year.
As mortgage lending decreases, the products still available will take on much higher premium prices. As David Black, Principal Consultant Banker at Defaqto stated, "in an atmosphere of financial mayhem, it is hardly surprising it is the poor consumer who is caught in the middle and is having to pay more for less choice." The reduced level of competition means the consumers will be charged more for basic services, placing many people, especially those with looking for bad credit mortgages or with insufficient mortgage deposit funds, at much greater risk.
To complicate matters further, demand from consumers looking to remortgage their property has risen in the last quarter and is expected to rise further. Consequently, as the demand for mortgaging increases and the banks reduce their mortgage availability, lenders will find themselves inundated by tremendous demand and consumers paying far higher rates than in the past.