Mortgage lenders to struggle in 2008
December 27, 2007
In a recent announce the UK’s financial regulator, the Financial Services Authority, has told top lenders to prepare themselves for a very tough year ahead.
FSA officials have warned that mortgage lenders are facing a very bleak year ahead, as a result of market conditions and the effects of the credit crunch that has swept across the country’s financial markets. The FSA states that in 2008 many people that come off cheap fixed rate mortgages will find it difficult if not impossible to get on to a more affordable deal.
The FSA has warned lenders to do whatever they need to in order to secure quality liquidity for the coming year, even if it means paying high prices and eating into profits. The agency added that board members needed to review their strategies, stating that: “It is clear that some business models are no longer as economically viable as they used to be.”
With reference to companies that are buying mortgage books, the FSA said that these lenders needed to consider “whether now is the right time to be exchanging liquid cash for illiquid mortgage assets”.
The effects of the credit crunch coupled with increased inter-bank lending fees has left the mortgage lending industry in hot water, using Northern Rock as an example the FSA urged lenders to think about how they can secure quality liquidity for the coming year. An FSA official stated that it “would be prudent to pay a correspondingly high price — and to forego some profits — to secure this protection, or otherwise to scale back balance sheet growth.”
Around 1.4 million people are due to come off cheap low rate fixed term deals over the coming year, and may not be able to get another affordable deal if conditions remain as they are.
The FSA official stated: “Many of these borrowers are on relatively high loan-to-value ratios or income multiples and will find it difficult … to refinance their mortgage on favourable terms, which will leave them facing a significantly higher interest rate on their borrowings, which may prove too much for many of them to afford.”
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