Julia Harris, Moneyfacts.co.uk's mortgage expert said that despite a buoyant start to 2007 with a wide selection of products and a swathe of new lenders entering the market, products have taken a sharp downturn since the July peak as the credit crunch hits home.
"Overall, taking account of both prime and sub prime deals, the total number of buy-to-let and residential mortgage products available has fallen a staggering 40 per cent in just the last three months," said Harris. "While most of this change can be attributed to the sub prime market, seeing a 72 per cent reduction in the buy-to-let market and a 54 per cent cut in residential deals, the 16 per cent fall in prime residential products is worth noting."
With the non-conforming sector in mind she continued: “Within three months, what was the fastest growing mortgage market is now suffering the biggest decline. In general it’s the higher risk products, which have been pulled, while many existing products have also seen more conservative limits applied. The maximum LTVs have fallen, self certification products have seen a decline, and borrowers are now less likely to find a sub prime lender that will accept extra heavy or unlimited adverse credit."
The drop in prime products is worrying though. Harris said: "Within a historically static market this is certainly unusual, and the reasoning much less clear cut. Northern Rock slashing its 230+ product range to just 70 products has certainly played a role, as has the merger of Nationwide and Portman. The rest can only be attributed to many lenders making more minor changes to their ranges. Some are withdrawing their higher risk products, for example those over 100 per cent LTV or their more specialist deals such as self-cert. Others are simply streamlining their ranges."
What does this mean?
“Clearly an overall 40 per cent reduction in products available will mean less choice for borrowers, particularly for those with bad credit, irregular incomes or those looking for high LTV products. But equally as worrying is the fact that lenders seem to be allowing the market to stagnate, very few new launches are being made, rate changes are slow and there is a discernable lack of innovation. It would appear nobody is prepared to pop their heads over the parapet and make distinctive changes, it’s a wait and see game.
“Lenders are taking a cautious approach, taking preventative action based on what they have learnt from the US. Only time will tell the true extent of the UK mortgage troubles. If housing prices continue to fall or arrears begin to rise, these could be a catalyst for trouble far worse.”
