For mortgages to make it on to the front page, things must be bad – Young homebuyers in crisis, Mortgage madness, Mortgage misery and Mortgage meltdown.
The problem is exacerbated by a Government that is keen to demonstrate an almost complete lack of insight into the mortgage market. New Chancellor Alistair Darling, seems to think the way to solve the affordable housing crisis is to force homeowners take out long-term fixed-rate loans. These loans already exist and the reason they are only offered by a handful of lenders is there is not the demand for them.
Early redemption penalties are hefty and many people are likely to have to pay them, given that we move, on average, once every six years. Add to this the transient labour market plus the chances of marital breakdown etc and you can see why few people are prepared to fix for that long.
The booming property market is the central concern but there are other issues. Rising payment arrears and repossessions make for scary reading. A survey by MoneyExpert.com says 77,000 borrowers a month will fall into arrears this year compared with 36,000 last year. But this is a prediction, not a hard fact. Those surveyed may be reeling from the rate rises and worrying about how they will cope. Someone on a £100,000 variable-rate mortgage will be paying an extra £100 a month. Cutting back on a night or two out a month will go some way towards meeting this cost. This is not the same as saying that repossessions will double this year.
Accusations of reckless lending by banks and building societies are flying around. On the one hand, first-time buyers cannot borrow enough but on the other lenders who offer high loan-to-value deals are encouraging them to take on high levels of debt. It is a lose-lose situation. In one article, banks and building societies stand accused of tearing up “prudent lending rules” by allowing buyers to borrow five or six times salary. But this is not new and not applicable to everyone. Lending more than someone can afford to repay makes no sense .
It is all too easy to use the sub-prime crisis in the US as an example of how badly things can go wrong. The lax lending policies of US lenders show no signs of transferring. There may be five sub-prime brokers who have found to be wanting by the FSA but that does not mean the whole market is a disaster.
Borrowers overstretching themselves is a problem that will come back to bite if they are not fully aware of the dangers. The broker has a vital role to play in this education.
Mark Harris is managing director of Savills Private Finance.