The number of prospective mortgage applicants who have been refused a mortgage, has increased by 60% since the northern rock problems.
Update read Mortgage Refusals in a Tight Market 2012
The reason for an increase in the number of mortgage refusals is:
1. Many US mortgage lenders went bankrupt.
Therefore, mortgage lenders are wary of taking on more sub prime debt. UK mortgage lenders are also becoming more cautious
2. Credit Crunch.
Many mortgage companies specialise in selling mortgages, but, then sell the mortgage debt to another company. This gives them the opportunity to sell more mortgages. (The traditional model is for building societies to finance mortgage debt out of savings). However, with many sub prime mortgage lenders going bankrupt, other financial institutions are increasingly reluctant to buy the bundles of mortgage debt. No body wants to touch the debt and so the mortgage companies have to be much more selective in who they lend to. This global credit crunch is also causing interest rates to rise on mortgage debt.
3. Re-evaluation of unconventional mortgages.
Unconventional mortgages such as interest only, mortgages 6 times income e.t.c. are becoming increasingly popular. There has been a significant increase in banks willingness to lend higher mortgage multiples. But, with a change in the climate of the housing market and mortgage industry they are much more cautious about lending.
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