Building societies start to feel the effects of the credit squeeze
April 14, 2008
Since the global credit crunch took a hold in the UK in the late summer of 2007, banks and larger lenders have made radical changes to their lending, and this has come about as a result of these lenders finding it increasingly difficult to get finance on the wholesale markets in order to fund their lending. The mortgage sector has suffered significantly since the onset of the credit crunch, and rather than vying for business mortgage lenders are doing their best to close the doors on new lending as they try and cope with their own financial situations.
Until now many thought that when it came to mortgages building societies were pretty safe, as they funded most of their mortgages from savers’ deposits rather than from finance obtained on wholesale money markets and inter-bank lending, which has become increasingly difficult and expensive. However, it seems that building societies are now starting to feel the effects of the global credit crunch, with a number of building societies reporting problems over recent weeks.
With many lenders being turned down by larger lenders, building societies have found themselves being inundated with applications for mortgages, and it has now got to the point where they can no longer keep up with demand. Borrowers and homeowners are beginning to panic because of the situation in the mortgage sector, and many are hoping that building societies can help them where banks have refused them finance.
However, building society officials have reported that they cannot cope with the high level of demand, and have had to take similar steps to banks in that they are now turning new custom away. Some have restricted new lending to customers living within a certain radius of the building society, whereas others have had to cut back on the deals on offer and simply close their books to all new borrowers.
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