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Building Societies Withdraw Mortgage Offers As Credit Crunch Bites

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http://business.timesonline.co.uk/tol/busi...icle3593992.ece

From The Times

March 21, 2008

Building societies withdraw mortgage offers as credit crunch bites

Siobhan Kennedy and Rebecca O’Connor

Building societies began turning borrowers away yesterday. A series of small societies, including Bath Building Society and Earl Shilton Building Society, withdrew all their home loan offers after it became impossible to secure funding for lending.

The sudden exodus shows that the turmoil in the credit markets is trickling down to building societies, many of which rely on interbank lending for as much as 30 per cent of their funds.

Pressure in the lending markets forced the Bank of England to make available a further £10.9 billion — £5 billion of which was emergency cash — to meet demand. That came after the issue of £5 billion in emergency money this week, which was five times oversubscribed.

The Bank’s efforts have had little effect as the high street banks, wary of a slowing economy and an impending US recession, sit tight on their cash and refuse to lend.

One source, speaking on behalf of a medium-sized building society, said that the mutuals had lost out to bigger institutions in the scrum for what funding was left. Large banks had more clout because they could buy bigger chunks of money, he said.

The restricted supply and high demand for funding has pushed up the price of borrowing to a level that some societies cannot afford.

The London interbank lending rate, the interest rate at which banks and building societies borrow, rose to 5.97 per cent yesterday, more than 0.7 per cent higher than the Bank of England base rate. At the moment, the pain is mainly felt by the smaller building societies, but bankers said that some of the larger societies were feeling pressure too. One said: “They’re going to have to think about how they find funding. And if they can’t find any they’ll have to go to the Bank of England.”

There are 59 building societies in Britain, with assets totalling £350 billion. Nationwide is the market leader by far, with £166 billion of assets.

Bath Building Society ranks 45th, with 20,066 customers. A spokesman said: “Wholesale money is difficult to get and we have come to a standstill. We are hoping it will be for just a month, but we have taken on so much \ we have run out of money to lend at the moment.”

Newbury, Melton Mowbray, and Tipton & Coseley building societies, all mid-sized mutuals, said that they had so little funding that they would lend only to people in their local areas. West Bromwich and Derbyshire said that they had withdrawn mortgages for sub-prime borrowers.

In a damning report this year, the CBI said that Britain’s building societies could be forced into a fresh round of mergers and acquisitions as paralysed wholesale funding markets destroyed profits. It said that confidence among mutuals was at its lowest since its polls began 18 years ago. Societies, which rely heavily on customer savings to fund home loans, are desperately trying to boost coffers by introducing best-buy savings rates.

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http://news.bbc.co.uk/1/hi/business/7307275.stm

Mortgage criteria getting tighter

Consumers are finding it tougher to get a mortgage as cautious lenders continue to withdraw and change deals.

Financial information service Moneyfacts said a string of lenders had tightened up their criteria over the last two days.

With lenders' funds drying up, higher deposits are being demanded from first-time buyers.

Several small building societies have been restricting or halting lending as a result of the financial turmoil.

Latest changes

The Co-operative Bank has become the latest lender to demand a higher deposit by cutting its maximum loan-to-value ratio from 95% to 90% in recent days.

Bigger lenders, such as the Halifax and the Woolwich, have slightly increased the interest rates on certain tracker or fixed-rate deals, while making other deals available only to those able to put down a 40% deposit.

The Cheltenham & Gloucester, part of Lloyds TSB, has also raised the interest rate charged on some deals.

It said it was doing this to "manage" the high volume of demand for its mortgages, caused by some rivals reining in their own lending.

Meanwhile, the market for sub-prime or other specialist mortgages continues to contract, with the West Bromwich Building Society, Mortgage Express and Nationwide replacing some of their existing ranges with new deals demanding a bigger deposit or higher interest rates.

For instance, the Mortgage Works - a subsidiary of Nationwide, the UK's second-biggest mortgage lender, followed many others in withdrawing from the 100% mortgage market on Friday.

Future deals

Smaller building societies are feeling the knock-on effect of banks tightening their criteria. As a result, they are withdrawing deals instead of being swamped by demand.

More than a million fixed-rate deals, typically lasting for two years, are due to expire in 2008, which will add to demand.

Those wishing to move house are being told to act fast on mortgage deals.

Ray Boulger, from mortgage broker John Charcol, said: "Those wanting to move might find a mortgage they could have got six months ago, even a month ago, is no longer available to them."

He added that lenders were changing their deals frequently, sometimes several times a week.

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This chimes with what the CML said yesterday. I posted a thread on this yesterday.

The Times article is proof that more lenders have withdrawn more products.

This leads to a massive increase in applications to the few lenders still offering good deals.

CML's Coogan said:

"Demand for mortgages remains strong but cannot be fully met from existing funding."

He said this had led to many lenders, facing the credit crunch, cutting the range of mortgages on offer, increasing their mortgage prices and, in some cases, reducing their lending capacity.

I think that a lot of this demand is from people trying to remortgage as their fixes come to an end. The results of this are:

1. Fewer lenders with fewer products

2. More applications per lender/product

3. Lenders having to deal with the increase by applying stringent filters e.g. instantly dismiss applications with any payment history hitch, high LTVs, no proof of income.

4. Cutting out brokers (they don't need to increase demand for what they have left).

In all, they are in the position of having to ration the credit that they can get hold of. This means more existing borrowers will find they have nowhere else to go but onto their lender's SVR. House movers unable to drum up a new mortgage. And FTBs and BTLers unable to get anything at all.

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Bath Building Society ranks 45th, with 20,066 customers. A spokesman said: “Wholesale money is difficult to get and we have come to a standstill. We are hoping it will be for just a month, but we have taken on so much \ we have run out of money to lend at the moment.”

Good planning. Same goes for pretty much all the other banks, so in the face of the prospect that investors would not buy up future mortgage effluent what did the lenders do?

Run through their lines as fast as possible.

Then we get the crocodile tears for Mervyn.

Run any other business like this without due care and attention to future prospects and you'd deserve every bit of pain and have to deal with the consequences of your own ineptitude. It seems as is these pseudo-companies expect bailing and propping at every turn and none of it is their own responsibility.

Shame we have monetary authorities than pander to these non-businesses, parasites and economy benders.

Edited by OnlyMe

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What guv, you wanna buy a house? got any money then? no? well, you cant buy one then.

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Yes Yes it's here!

Stop being hysterical and stop using capital font. It's insulting. We are not stupid and can read.

:huh: Since when is emphasising the title of an article being hysterical? Not sure I've ever heard of "Capital Font" before ... is that something new in Office 2007? :P

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This chimes with what the CML said yesterday. I posted a thread on this yesterday.

4. Cutting out brokers (they don't need to increase demand for what they have left).

Tipton & Coseley have already said that they are withdrawing from the intermediary market. I think that this will reduce the amount of mortgages that they take by about half.

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:huh: Since when is emphasising the title of an article being hysterical? Not sure I've ever heard of "Capital Font" before ... is that something new in Office 2007? :P

"Capital Font" is an exclusive development of luxury apartments in the Sighthill area of Glasgow. At £200,000 each, they are an excellent investment opportunity :P

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  • 297 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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