Lenders do not have as much money as they used to so they are cutting back on their lending. In the same way that lenders and banks lend out money to customers, it also has to buy the money to lend out.
They are only able to buy so much money from the money markets so they are only able to pass a limited amount of this on, which is making it harder for people to get mortgages.
Lenders are also having to pay a lot more for the money they borrow so they are increasing rates and making sure they see a return on their investment.
Lenders have had their fingers burnt by offering mortgages to people who can’t afford it, known as sub-prime customers, so they want to make sure this doesn’t happen again.
This means that the mortgage market looks like a very different place compared to five years ago.
Lenders are no longer offering people mortgages unless they have a hefty deposit and can prove that they can pay back the loan, unfortunately in the current market this means there are not a huge amount of people that fall into this category.
The mortgage shortage means that house prices have started to plummet. If nobody is able to get a mortgage, it means nobody will be able to move house. If nobody can move house than house prices will need to come down in order for people to be able to get on the housing ladder.
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The troubles in the mortgage market started over in America and partially in the UK. Mortgage lenders offered sub-prime mortgages to people that could not afford them, which led to banks losing a lot of money. This in turn led banks to be a lot more cautious as to who they were willing to lend money to and how much they were going to charge to lend that money. People defaulting on their mortgages caused the banks to have a lot of bad debt on their hands.
There is no doubt that the mortgage market will return someday but it will not look the same as it did five years ago. It will be a long time before lenders start to offer mortgages to people with bad credit or any type of debt.
If you have any kind of debt then it is unlikely you will be able to get a mortgage. A simple credit card bill may scuff your chances of being able to get a mortgage.
There is no telling when things will pick up in the mortgage market. The biggest factor stopping the market from recovering is a lack of confidence in the market. There is a lack of confidence from the lenders and investors. They want to make sure they get their money back from any loan that they hand out.
Lenders at the moment do not feel confident that the economy and people’s jobs are safe enough, so they will be strict in their lending.
Consumers also need to regain some confidence in the market before it can pick up. If consumer confidence is low then people will not want to buy or sell houses, which will stall the market.
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