Lenders warn mortgage squeeze will continue

Lenders have told the bank of England that the shortage of mortgage products is expected to decline further in the next 3 months.

Lenders have also warned that the number of people defaulting on mortgage payments will rise during the same period.

A meeting has taken place with the chiefs of the major UK banks and the Chancellor, Alistair Darling, and Hank Paulson, the US Treasury Secretary.

The Chancellor has proclaimed that there is little that the government could do to review the mortgage market while the wholesale credit markets remained frozen.

Mr Darling added that with one-third of all mortgage lending having previously been funded by wholesale borrowing, it was inevitable that the number of mortgage loans would drop.

However, Mr Darling said he is hopeful that in the longer term, the extra lending that the Bank of England was providing to the financial sector would come to fruition but this is dependant on the restoration of international confidence.

There are now less than 4,000 different types of mortgage on offer, compared with over 11,000 last July.

Earlier this week, figures released by the Bank of England revealed that 42,000 home loans were approved in May, which is a 27% decline compared with April and represents a 64% fall compared with a year ago.

The Bank said the figures were the lowest since it began recording the data in 1993. The figures were also lower than many analysts’ expected.

Since the credit crunch, financial institutions have tightened their lending criteria and has meant that mortgages have been hard to obtain.

In related news, the latest survey from the Nationwide revealed that house prices fell by 0.9% in June.

The Nationwide said that the average UK house price is now £172,415, which is 6.3% lower than in June last year.

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