Following the continued turmoil in the credit markets the mortgage market continues to struggle on and although business has slowed the market is not closed for business.
The number of approvals for house purchases has dropped to the lowest number since the 2004/05 slowdown in the housing market. The slowdown then followed a series of interest rate hikes by the Bank of England but quickly recovered following a single cut.
This time the slowdown is likely to last longer and purchase approvals are likely to fall below the 2004 level. It is also difficult to separate market trends from the effect that HIP's have had on the situation.
Demand from new buyers is lower but remortgaging is still fairly active. A large number of borrowers still need to refinance their expiring deals so business should remain fairly brisk.
Variable rate mortgages are becoming more popular as consumers seem to anticipate falling base rates, but I wouldn't be to sure with the threat of inflation causing the MPC a problem.
Consumers have also been left disappointed by lenders failing to pass on base rate cuts and have actually seen some fixed rates increase despite lower swap rates. On top of this arrangement fees have risen considerably. After years of intense competition lenders are now looking to restore margins and some have opted to lower their market share. Supply of credit is waning.
In the sub prime sector, lenders have had to stop operating because there is no appetite for securitised mortgaged assets. If a new alternative to securitisation is not found the mortgage market will have a £30bn shortfall a year as retail deposits do not match the demand for mortgage borrowing.