Problems in the Mortgage Markets

There are worrying signs that the problems in the mortgage sector continue to worsen. These are some of the major problems facing the mortgage industry at the moment.

Shortgage of funds on the money markets. This is the biggest problem facing mortgage lenders. Most lenders do not fund mortgages just out of savings account. They fund mortgages by reselling the debt bundles in forms such as CDOs. However, since the subprime defaults in America nobody wants to buy these CDOs. Any kind of mortgage lending is seen as high risk, therefore the funds have started to dry up. This has led to big name lenders closing mortgage accounts and refusing new customers. Recently, First Direct said that it will stop mortgage lending. Other big names such as Nationwide, HSB, Halifax and smaller building societies have all said removed certain types of mortgage products.

• This means it is much more difficult to get a mortgage loan. Lenders SVR are also increasing.

Problems for Those remortgaging.  People who took out mortgages a year ago, were able to benefit from lax lending criteria. e.g. 125% mortgages, self certification mortgages were much easier to get. When they remortgage, they may not be able to prove they earn sufficient income to a new lender. Therefore, exisiting mortgage holders may be unable to remortgage

Negative Equity. With the prospect of falling house prices increasing. More homeowners face the prospect of negative equity. This is particularly a problem for those who bought with a 95% or 100% mortgage. New homeowners are having to save a bigger deposit to get a mortgage.

See also: Credit crisis explained