Key facts about the reduction in the number of deals
Posted on 19 October 2007 by
During the last few days considerable media interest has focussed on a press release from Moneyfacts pointing out that a consequence of the credit crunch is that there has been a reduction of 40% in the number of mortgage products on offer over the last few months. Like so many statistics this comes in the category of “true but misleading.”
Despite the sub prime market accounting for only 9% of new mortgage business last year (probably less now) because of the huge number of combinations available in the adverse credit market in respect of the number and size of County Court Judgements, amount of mortgage arrears, amount of unsecured credit arrears, etc there were, until very recently, more different adverse credit mortgages than mainstream deals. Also many of the sub prime lenders offer most of their deals on a self cert basis in exchange for an additional 0.25% on the rate and this alone nearly doubles the number of different deals available from some lenders.
Thus, as the Moneyfacts press release goes on to point out, the reduction in the number of mainstream deals is only 15%, whilst the reduction in the number of sub prime deals is well over 50%. The reduction in the number of sub prime Buy-to-Let deals is even greater, over 70%, but this is a tiny sector of the market and so this reduction is of little consequence, although it provides a headline grabbing statistic.
For the majority of borrowers the 15% reduction in the number of deals on offer obviously means there is less choice, but most of these reductions are concentrated in a few lenders, with HBOS Group companies being a prime example, and the more important point is how competitive the deals still on offer are.
Building Societies had an all time record inflow of funds last month, as they benefited from savings withdrawn from Northern Rock and many borrowers with large savings spread their funds around by depositing £35,000 with a number of lenders once they became aware of the compensation scheme limits. Thus some building societies are fairly flush with funds, whilst some banks, which generally rely much more on the wholesale money markets for their funding, are either unable, or unwilling, to increase their lending.
The cost of fixed rate mortgages has fallen over the last couple of months because swap rates have dropped, as the market anticipates the next move in Bank Rate will be down, possibly as early as next month. Therefore, although the shortage of liquidity means that lenders have been able to increase margins and fewer deals are available, the actual cost of fixed rate mortgages has still fallen, which is perhaps the more important point for most borrowers.
Borrowers still have plenty of choice, although some lenders are giving less than their normal notice when pulling deals, and getting good independent advice is even more important than usual in a market where deals and criteria are changing rapidly.
Categories: Mortgages, Interest rates
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