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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.

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Article Published/Sorted/Amended on Scopulus 2008-02-22 11:57:12 in Economic Articles

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