Max (commentary)

According to our Money Programme survey, out of those people who would like to get on the housing ladder 77 per cent said that higher interest rates and bigger deposits will make them less likely to buy over the next five years. (Source: Ipsos MORI, survey conducted 9 -11 May 2008 Survey size: 1003, base size: 93)

It’s not just home owners who were worried about rising mortgage costs. Last month the Chancellor held a meeting with the main lenders to make sure that any of their customers who ran into payment difficulties would get some sort of help.

Michael Coogan (Council of Mortgage Lenders)

In the meeting with the Chancellor what we were keen to reinforce is that for more than twelve months we’ve been looking at a potential situation of worsening arrears and possessions with higher interest rates feeding through from the previous increases and that’s been added to by the credit crunch. So we were keen to emphasise to the Chancellor and his Housing Minister colleague that we were addressing that issue proactively, we were as keen as an industry to help struggling home owners stay in their homes.

Max (commentary)

Recent interest rate cuts by the Bank of England won’t help many people either. That’s because only a third of borrowers are on mortgages that track the Bank of England rate.

Merryn Somerset Webb (Editor, MoneyWeek)

Well the fact is that the, the Bank of England and the government do not set mortgage rates, the banks do and they can set them at, wherever they like and if they don’t want everyone’s business then they’ll set them so high that they don’t get everyone’s business. They may have rates which are slightly lower for the very credit worthy but if they don’t want the un-credit worthy or anyone with, with very little equity in their home then they’ll set rates such that they don’t get them.

Max (commentary)

Meanwhile house prices have continued to drop this month but how far they’ll fall is anyone’s guess. The lack of deals on the market is pushing down prices.

Jeremy Leaf (Royal Institution of Chartered Surveyors)

Very quickly, within weeks and months, a little bit of bad news filtered through and all of a sudden people were thinking this is affecting the whole market and it reduced confidence very rapidly and had a knock-on effect on the availability of property and prices started levelling off and even started falling now.

Max (commentary)

First-time buyers are in a lose-lose situation. Now last year when the market was booming they complained that house prices were rising faster than their incomes. This year it’s a different problem. House prices in most parts of the country are flat or are falling. But now mortgage lenders want deposits of five or ten per cent which first time buyers say they just can’t afford.

What about our young first-time buyer? Doug Maslowski is just nineteen but he’s keen to get on the property ladder.

He wants to buy a two bed house in Lees near Oldham for around a £120,000. It’s been difficult finding both the mortgage and a property.

Doug Maslowski

As a first-time buyer I don’t think I’ve got a lot of choice. Out there on the market for a first-time buyer we are limited to what we can actually buy, to what we can actually look at as well. A lot of people won’t take us on and it’s costing a lot of money just even, even before we move into the house it’s costing us a lot of money.

Doug Maslowski

Is it this one here?

Estate agent

This one, yeah, with the white door.

Max (commentary)

At the moment he lives with his mum and dad but is keen to move out. I joined him on his house hunt.

Estate agent

Lounge area.

Max (commentary)

With a full time job and a deposit he thought it would be easy to get a mortgage but so far it hasn’t been.

Max

And what’s your mortgage broker said then?

Doug Maslowski

My mortgage broker’s basically turned round to me and said that the mortgage that I wanted to go for with a deposit of £9,000 isn’t enough anymore. I need to raise that to £12,500 and of course if he said it once then I could go back again and he might even say I might need to raise it more again.

Max

And that’s a lot of money; where’s it coming from?

Doug Maslowski

It’s coming from my mum and dad.

Max

What do they think of that?

Doug Maslowski

Umm, well asking your mum and dad for a lot, for £12,000 wasn’t the easiest thing to do.

Max (commentary)

Doug wants a 90 per cent mortgage.

Estate agent

The first thing you notice in here, a lot more cupboard space...

Max (commentary)

He can afford the monthly payments of around £600.

Estate agent

Generally quite maintenance free.

Max (commentary)

But the banks aren’t keen to take his money.

Max

What about the mortgage companies, how many offers have you had?

Doug Maslowski

Err not that many, I’ve been turned away a lot.

Max

Why?

Doug Maslowski

I think that’s due to my age really and maybe to do with the deposit. I think they’re really going off a credit rating than actually a financial rate of the deposit.

Max (commentary)

Doug has a big reason for wanting to buy; he has a young son, Hayden, with his girlfriend.

At the moment they live apart from Doug in her parent’s house. He’s determined to unite the family in their own home.

Max

Why do you want a house so badly?

Doug Maslowski

I want a house because I want to be living with my girlfriend and my son. I want to see my son when I first wake up before I go to work, go to work, come back, make the tea when I come home, put my son to bed and then just of course relax with my girlfriend in my own house. Then of course do the same every day until the weekend.

Max

So, why don’t you just rent for a while?

Doug Maslowski

Because renting’s dead money; if you’re renting a house then you’re paying somebody else to live in that house when you can just be paying a mortgage and it could be your house, no-one else is deciding what happens with the house or anything. Getting a rented house is just really dead money.

Max (commentary)

Doug’s not alone. The credit crunch has hit first-time buyers hard. Their purchases are down by a third.

Ray Boulger (John Charcol Brokers)

Banks only want a certain amount of business and so they’re getting very choosy. Now in the good old days there was a price for most risks. Clearly if you were a high risk customer you would pay more but you could still get a mortgage in most cases. In today’s market the highest risk customers can’t get a mortgage at all.

Max (commentary)

Last year somebody in Doug’s position would have had much more chance of getting a mortgage.

Doug Maslowski

Do you like the swing?

Max

What do you think about first-time buyers in the mortgage market? How are you finding it?

Doug Maslowski

I’m finding it very hard. Very hard. And I think anybody my age who’s going to go for a mortgage is going to get turned down a lot or going to find it as hard as I’m finding it.

Jamie Dannhauser (Lombard Street Research)

Often people forget just how important first-time buyers are actually in terms of the underlying fundamentals of the housing market. If first-time buyers get really hammered in this then what’s clearly going to happen, in a cyclical sense, demand will be considerably weaker and that is going to put some downward pressure on prices over the next 12 to 18months.

Max (commentary)

The lenders are hinting that these products may come back into the market in the future.

First-time buyers and people with bad credit history are saying they’re being left behind, they’re effectively abandoned, they can’t get mortgages.

Michael Coogan

Well today there are fewer products available in the market than there used to be and for some customers that means that they don’t have a product they could have got a year ago. That does include first-time buyers without a deposit and it does include those customers who’ve got past debt problems and want to look to be rehabilitated. Now clearly we’re going through a period of adjustment and in the future we would hope the products re-enter the market that will address those customers’ interests.

Max (commentary)

Last month, with no sign of the credit crunch easing, the Bank of England stepped in with a fifty billion pound injection to get banks lending again.

Banks can temporarily swap their risky mortgage back loans for safer UK Treasury finance, they will then have more cash to lend out.

Merryn Somerset Webb

It will certainly make everybody feel a bit better; will it make them lend more money to people looking for mortgages? Well no, of course not. Of course not because the market has changed, it’s still risky to lend money to people to buy houses at the moment regardless of how much money the Bank of England lets you have and regardless of how many high quality securities it lets you have.

Jeremy Leaf

I think the point of the Bank’s move recently to, to shore up the money market and to instil a little bit more confidence with the banks is welcome of course, anything that helps with confidence but unfortunately any of that, any of that good news hasn’t been passed on to people in the street. We’re not seeing, in fact if anything the cost of mortgage products has gone up, umm, what we want to see, I suppose, first of all is the money or the rate at which banks lend to each other, once that starts to come down a little bit and the banks are making a little bit more money out of the money that they lend then they might feel a little less, less cautious than they have been at the moment.

Max (commentary)

For the foreseeable future the situation for homeowners is going to stay the same.

Michael Coogan

Cheap deals aren’t coming back in the next 12 months, 18 months. What we’re looking for in the longer term is that the adjustment we’re going through is as painless as we can make it for as many customers as possible. But pain is currently being felt both by the lenders, the intermediaries, the estate agents as well as the customers.

Merryn Somerset Webb

The banks are not any more prepared to lend simply for the sake of lending to anybody simply for the sake of gaining market share. They now want to lend to make money, to make a good return on the money they lend out to credit worthy people. So, I don’t think anything can bring us back to the very loose market we’ve, we’ve become used to.

Max (commentary)

But, what about our families? How are they coping with the realities of the new mortgage market?

Back in Wellingborough the news isn’t good. Hillary hasn’t been able to find a new mortgage that she can afford.

Hillary Le Roux

There’s, there’s absolutely no deals out there for us. Northern Rock is not offering their customers, their present customers, any new deals. We’re on the standard variable rate which is 7.49 per cent, we’ve even had to change from repayment to interest only because we cannot afford the repayment so they’ve agreed to do that for a year and then obviously review that after a year.

Max (commentary)

This only saves her £80 a month so she’s been forced to get a second job. But even this may not be enough to survive.

Hillary Le Roux

If the mortgage had to go up anymore we would not be able to afford that and we probably would go into being repossessed. It’s a very worrying situation for us because obviously we need to keep a roof over their head and hope that your finances are going to be, you know, stabling out every month and that you’ll be able to afford to pay for the things that you need for your children.

Max (commentary)

What about Polly in Wolverhampton? She’s finally made her decision.

Polly Sharma

There isn’t a single deal out there that I’ve been able to sort of agree on so I’ve got no alternative but to put the house on the market.

I hope to get a quick sale, which is a concern due to people having similar situation to sell up but in the meantime I’m, I need time out to actually reflect on what I can actually afford because I clearly need to downsize.

Max (commentary)

While she’s trying to move on she’s still angry.

Polly Sharma

I actually blame the mortgage lenders, you know, they were there for me right from the outset, couldn’t do enough for you but now it’s where I do need the support they’re not willing to actually take into consideration individual cases or individual situations so it’s the mortgage lenders that I’m actually blaming for this.

Max (commentary)

And Doug’s got an anxious wait to see if his 10 per cent deposit is going to be enough to get his family together in their own home.

Doug Maslowski

It’s not good. It’s not good on my mum and dad, it’s not good on me, it’s definitely not good on my family being in two different houses, as a family we want to be together and I don’t think it’s fair that we’re being, that can’t happen because the banks are saying no at somebody my age.

Caption: Next week – Profits of Gloom

Max (commentary)

Next week; a different story from the credit crunch. I meet the people whose prosperity is linked to the economic downturn.

Pawnbroker

That retails at £78,000.

Max (commentary)

If you think we’re all in for a tough time as the economic slump deepens then think again because for some things have never been better.

Michael O’Leary

I love recessions. Recessions are much more fun. Good times are a pain in the bum. Good times any idiot can make money.

Max (commentary)

So join me as I uncover the profits of gloom.

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Content last updated: 16/05/2008

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