Real Estate
Home Loans: Why Home Loans Won’t Return To 2007 Levels

Home Loans: Why Home Loans Won’t Return To 2007 Levels

Commentators have rightly pointed out that since the credit crunch erupted, house prices have been depressed by the depletion of available mortgages. Where before there were 25,000 different mortgages available, now there are perhaps 10% of that. With that kind of narrowing in choice, it’s no wonder home prices have fallen and are still falling.

The government has tried to address this problem by recapitalizing banks and pumping money into the system and by expanding its own acceptance of assets for loans. Government ministers have frequently declared their intention to return the system to 2007 lending levels, but do not understand or do not want to publish the key fact that makes this impossible.

During the period 2003-2006, the UK experienced an explosion in the number of mortgage lenders seeking to lend money in the housing market. This was financed through wholesale market money and resulted in an explosion in the number of products available, and an explosion in the type of properties that were now acceptable and the type of people who now qualified for a mortgage. When the credit crunch hit, those new lenders shrunk, unlikely to return any time soon.

So here we are in a UK housing market where home lending is at a historically low level, with a government apparently determined to deliver on its mantra to return to 2007 lending levels. Even as we reach the bottom of the house prices (wherever that may be), and even when the recession ends and the risk of new bouts of unemployment recedes and banks can lend confidently again, the sad truth is that we still have a long way to go. away from 2007 lending levels. The reason for this is simply that there is not the underwriting capacity or experience in the system to generate a return at that level of mortgage lending and there is also no appetite within the remaining banks to enter to markets they have traditionally avoided.

For home lending to return to 2007 lending levels, we would need lenders ready and willing and able to lend to not only niche property types (eg, concrete construction, high-rise buildings, ex-municipal flats, flats on shops, floors above pubs or restaurants, post (war timber dwellings, steel frame dwellings, etc.) but also to people who had irregular income, adverse bad credit history, are partially dependent on benefits, cannot validate their income , rely on investment income, have low deposits, etc. Since the remaining lenders have NEVER had an interest in making these types of credit situations part of their core business, it is unlikely they will now. , regardless of the amount of money that the Government injects into the banking system, regardless of the state of the real estate market od Given the risks associated with mortgage lending stemming from the broader economy, it remains highly unlikely that we will see a return to 2007 lending levels until niche lenders come back to fill the gaps that major mortgage lenders with all probability they will never want to fill.

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