UK Housing Mortgage Market Crunch
Housing-Market / UK Housing Apr 02, 2008 - 01:55 PMBy: Nadeem_Walayat
We have repeatedly warned of the consequences of this trend due to two factors.
1. The inter bank money market liquidity squeeze, which has seen inter bank rates soar back above 6% in recent weeks despite two Bank of England base rate cuts. The Bank of England is also trying to counter the liquidity squeeze by releasing tens of billions in extra funding for the banks. The banks are still reluctant to lend to one another given the risks of default and this also means the banks are more reluctant to lend to customers, some of the ways of limiting business is by making the lending criteria much tougher and by charging high rates of interest and fees as especially mortgage banks brace themselves for losses from a faltering UK housing market.
2. Northern Rock Bank - The nationalisation of the bank has resulted with the banks intention of repaying the UK Government the £28 billion outstanding within the next 4 years. The way the bank will achieve this is by shrinking the banks business by forcing customers through high mortgage interest rates to remortgage to other banks. Thereby the bank would utilise the funds from repaid mortgages to repay the UK government instead of for new lending. Already the bank has shrunk the original debt by £3 billions, as more customers are forced to remortgage to other banks. This creates an upward pressure on mortgage interest rates that will continue for several years.
The housing market will continue to buckle under the strain of the credit crisis. House Prices that in many cases demand X7 salaries will increasingly be unable to find any buyers as the banks are no longer willing to take on risks of more than X3.5 salary. Therefore the UK housing market remains on track for a significant bear market the initial forecast for which is for a 15% drop from August 07 to August 09.
Important UK Housing Market Articles
By Nadeem Walayat
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