I can fully appreciate and completely understand why some people may possibly be in turmoil by the current financial situation. In spite of the colossal amount of cash poured into the banking system, property purchasing and development is alluding people, due to the fact that they cannot borrow money from the lenders. Even simple purchasing on the high street appears to be a thing of the past because credit is impossible.
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?
The answer comes as no huge surprise really. Due to the fact that lending establishments are currently unsure of their assets leading them to be very unsure of their liabilities has caused them to plunge into somewhat of a crisis.
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.
In conclusion, my personal opinion is that the mortgage market, if it returns at all, could well take some years before we see a any changes. These changes may be in the way we mortgage our properties leaving behind high loan to values and self certification. Indeed, the ease with which these mortgages have been recently been churned out has resulted in the inflation of the property market over the last few years. It?s arguably a good reason why many of these mortgages should never have been obtained. Our future prospects could be about biding our time till incomes and deposits reach levels compatible with house prices or a more a chilling thought is to simply wait till property prices decrease.
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