What will 2009 bring?

By Guest Blogger ‘Making Money Sense’

Sunday 8th February 2009

For most of us, 2008 was a difficult and nerve-racking year, and we were all glad to see the back of it, but is 2009 likely to be any better? The Credit Crunch and all its attendant problems are far from over and despite the two base rate reductions last month and again last week things still look very bleak.

So, what can we expect in the months to come? The predictions are that the base rate will drop further, possibly even following the Americans down to 0%, but will this help? Those fortunate enough to already have Tracker rate mortgages will benefit, and lenders will no doubt again be pressured into passing on these reductions and drop mortgage rates across the board. But in reality, this is an illusion. Few will benefit from reduced mortgage rates, just as few have benefited from the last three drops in the bank rate. Why? Because mortgage lenders in particular are giving with one hand and taking back with the other. Along with the reduced rates are the lower loan-to-value ratios, and with the drop in property values, the majority of people no longer qualify for the rates offered, so we are back to square one.

Lenders are also tightening their criteria to ridiculous lengths. I’m sure we all agree that handing out huge loans to the self-employed odd-job man who self-certified his income at £200k is little short of insane. That’s the kind of irresponsible lending that was the primary cause of the mess we are now in. But, taking things to the other extreme, as one well-known high-street lender is doing, doesn’t help anyone. The said lender, having dropped their Standard Variable Rate to less than 5% is now calculating ALL mortgage applications at 7% on a Repayment basis. This means that someone applying for an Interest Only mortgage for £150k on a Tracker rate of 4% would in actual fact be paying £500 per month. However, in order to qualify for the mortgage he would have prove he could pay £1200 per month to get it!

Everything the government has apparently done to help the cash-strapped public is an illusion and lenders are not sympathetic to their problems. I have clients who are desperate to reduce their costs by remortgaging and consolidating, but although this makes absolute sense from an affordability point of view, its seems lenders are no longer using affordability as a yardstick for assessing a mortgage or loan. They’ve tightened up their criteria to the point where they might just as well hang out a sign saying “no more mortgages, loans or finance until further notice”. At least it would save everyone the frustration of applying for mortgages and then being declined on some stupid technicality.

Alastair Darling threatened to force banks and lenders to help the public, and whilst no-one wants to see the financial institutions nationalized, perhaps that’s the necessary evil needed to turn things around. The last time the world was in this situation, it took WWII to pull us out ….. desperate times call for desperate measures …. but if they had to chose, the majority of people would prefer nationalised banking to another World War!

So maybe its time we all took the time to exercise our rights and start putting pressure on our MP’s to get the government to do something practical, even if it does mean the government taking control of banking in the short-term.

In the meantime, the next blog will explore ways in which we can help ourselves to stave off the horrors of repossession and bankruptcy.


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