The total number of buy-to-let and residential mortgage products available has fallen by a staggering 40% overall in the last three months. Most of this is due to bad credit (or "sub prime") mortgages being withdrawn from sale. In fact, 72% of bad credit buy-to-let mortgage products were withdrawn and 54% of bad credit residential mortgage products were withdrawn.
Bad credit mortgages was the fastest growing mortgage market, but is now suffering the biggest decline. In general it's the higher risk products that have been pulled by mortgage lenders, with many existing products having more conservative lending limits applied.
The maximum loan-to-values ("LTV") have fallen, self-certification products have seen a decline, and borrowers are now less likely to find a bad credit mortgage lender that will accept extra heavy or unlimited adverse credit.
Good credit ratings
For customers with good credit ratings the residential mortgage market has witnessed a 16% drop in the number of mortgage products available for sale. This may not sound much in comparison to the bad credit mortgage market, but this is unusual given the mortgage market is fairly static at the moment. Part of this drop could be down to Northern Rock axing over two thirds of its mortgage range and the merger of Nationwide BS and Portman BS resulting in a rationalisation of their mortgage ranges.
Other mortgage lenders are withdrawing their higher risk products, for example those over 100% LTV or their more specialist deals such as self-certification. Others are simply streamlining their ranges.
A 40% reduction in mortgage products will mean less choice for borrowers, particularly for those with bad credit, irregular incomes or those looking for high LTV products. Mortgage 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.
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