The credit crunch has seen numerous casualties and with the contraction of available credit, many homeowners have been forced to remortgage onto expensive products or remain wth their existing lender at standard variable rates (SVR). In normal circumstances, this would have increased the financial burden on UK borrowers, as the SVR for lenders is usually set at the highest margin for a lender and it is at such levels that they can make their gretaest profit.
For most people with a mortgage, this course of events would have spelt disaster, but low Bank of England base rates coupled with pressure from consumer groups and Government has kept home mortgage lenders in check and prevented them from significantly increasing their variable rates. This is despite a current lack of competition in the mortgage market.
The banks however, have not been prevented from increasing margins on new products and this has occured at record highs. It has been suggested that UK banks and lenders are now earning up to 7 times more profit on each new mortgage than they were at the height of the housing boom in 2007.
The availability of mortgages whilst increasing, still remains difficult for those seeking large mortgages and by this it is meant mortgages over £500,000. For borrowers seeking loans of £1m plus, the options are extremely limited and many of the national lenders have withdrawn such facilities in the desire to diversify the risk and utilse their funds to agree a number of small loans rather than one large mortgage.
This poses enormous dilmemas for clients looking for large mortgages and it is usual that clients looking for large loans are usually the most well off, have a range of assets and a higher level of disposable income than the norm. The risk profile of such applicant's can often be much lower. As a London mortgage broker, dealing with such clients we often find that borrowers taking out large mortgages are far easier to deal with than those taking out smaller loans. Income often comes from more sustainable, long-term and reliable sources and other financial planning regulaly compliments the application, yet mortgage companies are avoiding this professional category of borrower.
In considering UK lenders approaches, one cannot be too critical as there is a need to consider the re-sale value of larger properties, particularly in London and the South East. Lenders fear that if customers with large mortgages have to be repossessed for whatever reason, the Bank are likely to have an uphill struggle in disposing of the property and in any 'fire sale', a significant propertion of equity in the asset may simply evaporate.
However, in the event that lenders do not open up this channel, the impact on the whole of the economy will be devastating as top end house-builders and properties of high end value will experience greater stagnation than those at the lower end. The ability to re-finance these properties is also problematic causing many of premier houses to enter the market, which otherwise would not become available. The inevitable increase in supply further eroding prices and the spiral of declining confidence and fear continues.
Lenders should revert to the old, tried but tested principles of risk and reward. They should look at their arrears figures and statistically analyse the volume of higher end property and the performance of their large mortgage book to ascertain and calculate the exact risk and reward. Those purchasing large houses often have good careers, social standing and significant community ties. They have a lot more to fear than repossession and this further minimises the risk of default.
It is of interest that private banks have significantly increased their client base and private mortgage book as a result of the credit crunch.Companies such as Capital Fortuneare reporting the placement of greater numbers of high net worth clients on bespoke, tailor-made and competitive products, no longer being offered by the mainstream lenders.