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Mix and match for recovery

Cutting the base rate to 3 per cent is likely to increase mortgage demand but if funding does not improve, it could result in lenders withdrawing products because they do not have enough funding and we end up with a nanosecond of warning, if that.

The Government has pumped in billions to alleviate the shortage of funds for lenders but the problem continues to exist. The banks have made it clear their margins have been squeezed by the latest cut. At the time of writing, over 30 lenders prompted strong criticism by rushing to withdraw their tracker deals.

Bank bosses have warned Alistair Darling they are “not charities”. I can understand their predicament but the market is in a mess. It has been suggested by some commentators that the banks are acting like charities themselves when it comes to accepting Government funding but they do need to work with the Government to ensure mortgage borrowers and small businesses are given the help they need during these tough times.

We can see the problem from both sides and the price of mortgages is not the only issue. We welcome the big drop in rates and it will help existing customers linked to base rate but the worry that house prices have not stabilised is a key factor. Lenders are holding back on criteria and restricting loan to value in case house prices plummet and a 90 per cent LTV becomes 100 per cent. The combination of low LTV, falling property values and lack of funding in the market are all issues to be considered in the pricing mix.

Customers who have reverted to standard variable rate with no redemption charges are stuck. They will find it impossible to remortgage if their property price has dropped substantially as they now need a higher loan to value to remortgage. A few years ago, lenders were really focused on retention. Be careful what you wish for, as we now have massive retention and, as a result, no flow of funds, making the market even more difficult.

We all need to work together to get the markets back on their feet. It is a matter of give and take on all sides. Financial concess-ions hurt everyone – the taxpayer, Govern-ment and lenders in one way or another but by working together we have a much better chance of success. We have moved beyond the us and them attitude and the blame game. It is now about all of us sharing the pain to get the market back on its feet. If this means some pain for bank shareholders too, then so be it.

Sally Laker is managing director of Mortgage Intelligence

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