According to John Charcol there are currently around 2 million households either in negative equity or with equity of less than 10%, 500,000 households with equity only between 10% and 15% and a further 1 million households who have either sub prime or self-certified mortgages. In current market conditions, all of these groups, a total of approximately 3.5 million households, will find it very difficult or impossible to move. Furthermore, there are very few mortgage deals available for people with less than 15% equity, those which are available have very high interest rates and worse still there is a strong probability of applicants being rejected because lenders insist on a high credit score before accepting such applications.
Ray Boulger of leading UK mortgage broker John Charcol comments, "When most people move they rely on the equity in their property to provide the bulk of the deposit required for their new property, which is currently a minimum of 10% in most cases, plus moving costs, of which stamp duty land tax is often the biggest. Having such a large number of households who are currently unable to move is not only a serious problem for the people concerned, but also has important macro economic consequences.
"In the Treasury Select Committee report ‘Mortgage Arrears and Access to Mortgage Finance' published last week, evidence from Lord Myners, Financial Services Secretary, demonstrated his complete failure to understand the current state of the market by his comment that there is a ‘very competitive market for mortgages'. It's extremely worrying that someone who is helping to shape Government policy has such a dangerously naïve understanding of current conditions."
Another element missing from the Treasury Select Committee report is any comment on the impediment to access to mortgage finance created by lenders who carry out a full credit check when they receive a request for a Decision in Principle (DIP) rather than a full application. This leaves a footprint on the customer's credit file, inhibiting their ability to shop around because their credit score is negatively impacted by too many searches.
Boulger continues, "Lenders are required under FSA rules not to do anything to inhibit consumers shopping around, but most have been riding roughshod over this requirement ever since the FSA started regulating mortgages in October 2004. Avoiding contravening this rule is very simple - all a lender has to do is to refrain from recording a full search but instead do a quotation search, which provides the same information, unless and until they receive a full mortgage application. I wonder if the FSA even knows which lenders use a quotation search and which don't. Along with addressing the other ‘missing links' in the report we have identified, the committee should have asked the FSA when they intend to start enforcing this rule. Until these issues are addressed, the issue of access to mortgage finance continues to be a very real problem for UK households."
