The Mortgage Market Will Always Be There

Despite the shenanigans of the Banking industry, in many cases caused by a move away from traditional banking principals of not borrowing short and lending long, the mortgage market will remain a strong feature of domestic lending. This aspect of banking was only really developed within the past thirty years with the advent of wholesale money dealing and securitisation allowing the banks to go against the traditional maxim of not lending long term.

The main problem has been caused by imprudent lending. By lending to unrealistically high loan to value ratios and to individuals whose creditworthiness has been at best questionable and at worst nonexistent, the banks have created a huge default list in their books. By allowing individuals to self certify their own incomes, in many cases without checking the veracity of their statements, they have opened the doors wide to the disaster that has inevitably followed.

One of the main types of mortgage that has caused this debacle has been the equity release mortgage . In recent years the prices of property has soared, partly because of the lack of lending restrictions and imprudent lending. This has resulted in a massive equity bonus for huge numbers of property owners. Individuals have then been able to borrow against the higher value of their properties, normally by re-mortgaging to a fresh lender at competitive rates. The monies raised have been used for traditional purposes, like buying more investment property, but also for such spurious things as cars, holidays and the inevitable consolidation loans to repay credit obtained earlier so easily elsewhere. Thus, in many cases, short term borrowing has been replaced by long term borrowing for the wrong reasons.

The other reason people have taken equity release mortgages is because they may be asset rich and cash poor and they find themselves sitting on a fortune. Some elderly people can realise the value in their property and obtain cash for easing the pressure of living expenses when their incomes have dropped substantially. Handled properly this can be a valid reason to remortgage.

The market is now beginning to settle down to a more traditional pace but restrictions will ease again, perhaps not to the crazy proportions of recent years, when the banks find their profitability and targets are not being met.

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