The two tier mortgage world.
Trumpo feels that the lending market wont be getting any tougher for the asset rich.
Following recent announcements that the mortgage market is not getting any worse, we seem to have now hit the bottom in funding availability for those that have plenty of equity, but the complete opposite is happening for those that have not.
We wont for the forseeable future be seeing new mortgages available at high % loan to values at attractive rates or the return of no questions asked mortgage products, but traditional lending with deposits/equity of 25% or more are now starting to come back into play at attractive medium term rates .
We do however have a bit of a problem on the horizon, with more and more people coming out of fixed rates and onto really low standard variable rates, those with little or no equity in their homes are now trapped in their homes with the same mortgage lender and will be for many many years to come. All these people have basically been frozen out of new mortgage products, if you are above 75% LTV, which I estimate 10 million mortgage payers are, the rates can be either 2% standard variable or 6% on a new product – a 300% variation!
With many cash strapped families naturally opting for the lower standard variable rate, and if the standard variable rates start to creep up, which if the banks can get away with they will, then additional pressures will be put on the vulnerable and repossessions will rise dramatically.
We are basically enterring a period of a two tier mortgage world; for those with equity the good deals will continue to be rolled out throughout the year, for those with little or no equity you will continue to be basically frozen out of the mortgage market and the rates that the banks are going to charge will not be able to be challenged as no competition will exist.
Maybe like in the USA, our govt should step in and provide low rate fixed mortgage deals to the most vulnerable, irelevant of equity levels, and not for profit. This then may give a fighting chance to the most vulnerable and this will help to prop up the housing market.
Unless dramatic action such as above occurs, then Trumpo fears a debt and affordability bubble-burst of gigantic proportions during the next 18 months and recommends that those who are worried about their level of debt and who may be struggling to pay to get help ASAP.
Please dont explode with the Bubble !
Your understanding Trumpo.
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April 14th, 2009 at 4:52 pm
Unfortunately a lot of people could find themselves in the mortgage trap you describe.
Over the last 6 months many people, including myself have seen the controlled rates on there mortgage product end. Traditionally the product would then revert to the lenders SVR and you would see a rate increase of between 1.5 & 3.5%. This then encouraged the majority of borrowers to re-mortgage onto a new controlled rate product, keeping the flow of money between lenders moving and mortgage professional busy.
Now when the controlled rate period ends people are seeing there mortgage payments drop because of the historically low Bank Base & SVR , but in the medium to long term BBR & SVR will increase again and when they do they will climb quickly. At this stage with property prices still dropping a borrower who re-mortgaged at 80% 2 years ago could find themselves at 95% and unable to re-mortgage, my advice is to re-mortgage whilst you still have equity in your property and the rates are low. Ignore the SVR payment and fixed your payments whilst you can for a long as you can.