Warning of a mortgage crisis next year

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by Kay Murchie

The warning from the industry is that mortgage lending is likely to dry up in 2008. Over the last few months, the sub-prime mortgage crisis has had an impact on British banks, in particular Northern Rock.

Last week, The International Monetary Fund warned that escalating oil prices and the turmoil in the financial markets caused by the credit crunch might bring a ‘big reduction in international trade from which no-one would be immune’.

The bad news continued with the Bank of England warning of a slump in new mortgages, from 102,000 in September to 88,000 in October. The bank’s governor, Mervyn King, told MPs on the Treasury select committee that obtaining a mortgage could become more difficult with lenders being restricted in their ability to fund mortgage lending.

Furthermore, things deteriorated when the Council of Mortgage Lenders warned of a shortage of money available to fund mortgage markets ‘if capital markets do not open next year’. Nationwide then announced that property prices fell last month at their fastest rate since 1995.

It is expected that as a result of the credit crisis, banks are not lending to each other so mortgage costs are set to rocket for everyone.

Finally, 1.4 million property owners face an increase in their mortgage payments of at least 60% when their fixed-rate deals expire over the next few months so switching to a cheaper deal may become very difficult.