Recent Developments in the UK Mortgage Industry
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In recent years, the UK mortgage industry has benefited from financial
deregulation and also faced challenges from the unprecedented boom in UK house
prices.
Financial deregulation means that there is increasing competition
between banks, building societies and online mortgage lenders. The financial
deregulation has also led to an increasing, and at time bewildering, range of
new mortgage products
Most significant New Types of Mortgages
Current Account mortgages.
Current account mortgages are becoming increasingly popular because they
offer homeowners the opportunity to combine their current account with their
mortgage debt. They are particularly useful for people with large current
accounts and who pay the higher rate of income tax. Savings in the current
account are automatically used to reduce the mortgage capital. Therefore, this
leads to lower interest payments.
Interest Only Mortgages.
Interest only mortgages, have also increased in popularity, partly as a
result of rising house prices. This is because first time buyers struggle to
get a mortgage, Interest only mortgages offer an option for making mortgages
more affordable, especially in the short term. However, they rely on
homeowners being able to invest in alternative schemes to pay off the capital
at the end of the term. There are concerns that interest only mortgages are a
quick fix, leaving first time buyers vulnerable to rising interest rates.
Self Certification mortgages.
Self certification mortgages enable people to borrow a certain amount
without having to prove their income. They are primarily aimed at the self
employed. The argument is that if people have variable income or have
difficulty proving income, then self certification is a way to bypass the
traditional lending criteria. However, there are concerns that the increased
popularity of self certification mortgages are a way for people to borrow more
than they really should. Given the rise in house prices, self cert mortgages
have been a way for people to stretch themselves financially and borrow high
income multiples. An investigation by the FSA into self certification
mortgages found that mostly the system was not being abused. However, there
was a necessity for banks to undergo more checks than previously.
The impact of Rising house prices on the UK mortgages.
House prices in the UK have more than doubled in the past 6 years. This
means that mortgages payments have increased as a % of disposable income. This
is the main reason why mortgage lenders have become more adaptable in changing
their strict lending criteria. However, although lending has become less
strict, there are still controls in place. Therefore, the UK is not facing the
sub prime meltdown that is currently affecting the US.
About the Author
R.Pettinger is an Economics teacher at Oxford and writes frequently on the UK
economy and mortgages. He edits a site about Mortgages including a guide to different types of mortgages.
http://www.mortgageguideuk.co.uk/.
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Article Published/Sorted/Amended on Scopulus 2008-02-22 11:57:12 in Economic Articles
